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.
A lack of profits can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. That said, here are three unprofitable companiesto steer clear of and a few better alternatives.
Opendoor (OPEN)
Trailing 12-Month GAAP Operating Margin: -4.4%
Founded by real estate guru Eric Wu, Opendoor (NASDAQ: OPEN) offers a technology-driven, convenient, and streamlined process to buy and sell homes.
Why Do We Pass on OPEN?
- Demand for its offerings was relatively low as its number of homes purchased has underwhelmed
- Cash-burning history makes us doubt the long-term viability of its business model
- Unprofitable operations could lead to additional rounds of dilutive equity financing if the credit window closes
At $3.22 per share, Opendoor trades at 0.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than OPEN.
Sunrun (RUN)
Trailing 12-Month GAAP Operating Margin: -170%
Helping homeowners use solar energy to power their homes, Sunrun (NASDAQ: RUN) provides residential solar electricity, specializing in panel installation and leasing services.
Why Are We Cautious About RUN?
- Sales tumbled by 6.2% annually over the last two years, showing market trends are working against its favor during this cycle
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Sunrun’s stock price of $13.97 implies a valuation ratio of 19.3x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including RUN in your portfolio.
Exact Sciences (EXAS)
Trailing 12-Month GAAP Operating Margin: -34.5%
With a mission to detect cancer earlier when it's more treatable, Exact Sciences (NASDAQ: EXAS) develops and markets cancer screening and diagnostic tests, including its flagship Cologuard stool-based colorectal cancer screening test.
Why Are We Hesitant About EXAS?
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Negative returns on capital show that some of its growth strategies have backfired
Exact Sciences is trading at $45.68 per share, or 62x forward P/E. If you’re considering EXAS for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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