Running at a loss can be a red flag. Many of these businesses face mounting challenges as competition increases and funding becomes harder to secure.
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 avoid and some better opportunities instead.
Zillow (ZG)
Trailing 12-Month GAAP Operating Margin: -5.6%
Founded by Expedia co-founders Lloyd Frink and Rich Barton, Zillow (NASDAQ: ZG) is the leading U.S. online real estate marketplace.
Why Do We Steer Clear of ZG?
- Annual sales declines of 7.8% for the past five years show its products and services struggled to connect with the market
- Poor expense management has led to operating margin losses
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Zillow’s stock price of $81.70 implies a valuation ratio of 43.3x forward P/E. Check out our free in-depth research report to learn more about why ZG doesn’t pass our bar.
Masimo (MASI)
Trailing 12-Month GAAP Operating Margin: -12.8%
Founded in 1989 to solve the "unsolvable problem" of accurate pulse oximetry during patient movement, Masimo (NASDAQ: MASI) develops and manufactures noninvasive patient monitoring technologies, including its breakthrough pulse oximetry systems that accurately measure blood oxygen levels even during patient movement.
Why Does MASI Fall Short?
- Sales tumbled by 18.4% annually over the last two years, showing market trends are working against its favor during this cycle
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Masimo is trading at $152.87 per share, or 30.5x forward P/E. To fully understand why you should be careful with MASI, check out our full research report (it’s free).
Xerox (XRX)
Trailing 12-Month GAAP Operating Margin: -16%
Pioneering the modern office copier and inventing technologies like Ethernet and the laser printer, Xerox (NASDAQ: XRX) provides document management systems, printing technology, and workplace solutions to businesses of all sizes across the globe.
Why Do We Avoid XRX?
- Sales tumbled by 4.9% annually over the last five years, showing market trends are working against its favor during this cycle
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- 8× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $4.17 per share, Xerox trades at 2.7x forward P/E. Dive into our free research report to see why there are better opportunities than XRX.
High-Quality Stocks for All Market Conditions
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