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.
Wayfair (W)
Trailing 12-Month GAAP Operating Margin: -2.5%
Founded in 2002 by Niraj Shah, Wayfair (NYSE: W) is a leading online retailer of mass-market home goods in the US, UK, Canada, and Germany.
Why Do We Steer Clear of W?
- Active Customers have declined by 1.7% annually over the last two years, suggesting it may need to revamp its features or user experience to stay competitive
- Monetization and engagement metrics haven’t budged over the last two years, suggesting it may need to increase the efficacy of its platform
- Gross margin of 30.3% is below its competitors, leaving less money to invest in areas like marketing and R&D
Wayfair’s stock price of $79.06 implies a valuation ratio of 19.4x forward EV/EBITDA. Check out our free in-depth research report to learn more about why W doesn’t pass our bar.
Avis Budget Group (CAR)
Trailing 12-Month GAAP Operating Margin: -1.5%
The parent company of brands such as Zipcar and Budget Truck Rental, Avis (NASDAQ: CAR) is a provider of car rental and mobility solutions.
Why Is CAR Risky?
- Demand for its offerings was relatively low as its number of available rental days - car rental has underwhelmed
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Avis Budget Group is trading at $158.76 per share, or 11.4x forward P/E. Dive into our free research report to see why there are better opportunities than CAR.
Azenta (AZTA)
Trailing 12-Month GAAP Operating Margin: -5.3%
Serving as the guardian of some of medicine's most valuable materials, Azenta (NASDAQ: AZTA) provides biological sample management, storage, and genomic services that help pharmaceutical and biotechnology companies preserve and analyze critical research materials.
Why Do We Think AZTA Will Underperform?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 7.2% annually over the last five years
- Sales were less profitable over the last five years as its earnings per share fell by 18.7% annually, worse than its revenue declines
- Free cash flow margin dropped by 22.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $30.42 per share, Azenta trades at 40.2x forward P/E. To fully understand why you should be careful with AZTA, check out our full research report (it’s free).
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