Unprofitable companies can burn through cash quickly, leaving investors exposed if they fail to turn things around. Without a clear path to profitability, these businesses risk running out of capital or relying on dilutive fundraising.
Finding the right unprofitable companies is difficult, which is why we started StockStory - to help you navigate the market. That said, here are three unprofitable companiesto steer clear of and a few better alternatives.
Upstart (UPST)
Trailing 12-Month GAAP Operating Margin: -5.9%
Founded by the former head of Google's enterprise business, Upstart (NASDAQ: UPST) is an AI-powered lending platform facilitating loans for banks and consumers.
Why Does UPST Worry Us?
- Software offerings aren’t resonating in this new AI paradigm as its revenue declined by 7.4% annually over the last three years
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Upstart’s stock price of $67.25 implies a valuation ratio of 5.6x forward price-to-sales. Read our free research report to see why you should think twice about including UPST in your portfolio.
Zevia (ZVIA)
Trailing 12-Month GAAP Operating Margin: -10.5%
With a primary focus on soda but also a presence in energy drinks and teas, Zevia (NYSE: ZVIA) is a better-for-you beverage company.
Why Are We Cautious About ZVIA?
- Products fail to spark excitement with consumers, as seen in its flat sales over the last three years
- Poor expense management has led to operating margin losses
- Cash burn makes us question whether it can achieve sustainable long-term growth
Zevia is trading at $2.96 per share, or 1.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ZVIA.
Walgreens (WBA)
Trailing 12-Month GAAP Operating Margin: -4.4%
Primarily offering prescription medicine, health, and beauty products, Walgreens Boots Alliance (NASDAQ: WBA) is a pharmacy chain formed through the 2014 major merger of American company Walgreens and European company Alliance Boots.
Why Are We Hesitant About WBA?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 3.8% for the last six years
- Gross margin of 17.7% is an output of its commoditized inventory
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $11.84 per share, Walgreens trades at 8.1x forward P/E. If you’re considering WBA for your portfolio, see our FREE research report to learn more.
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