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 avoid and some better opportunities instead.
C3.ai (AI)
Trailing 12-Month GAAP Operating Margin: -101%
Named after the three Cs of its original focus—carbon, cloud computing, and customer relationship management—C3.ai (NYSE: AI) provides enterprise AI software that helps organizations develop, deploy, and operate large-scale artificial intelligence applications across various industries.
Why Should You Sell AI?
- 11.9% annual revenue growth over the last three years was slower than its software peers
- Gross margin of 56.6% reflects its high servicing costs
- Cash-burning history makes us doubt the long-term viability of its business model
C3.ai is trading at $17.35 per share, or 7.6x forward price-to-sales. Read our free research report to see why you should think twice about including AI in your portfolio.
Kraft Heinz (KHC)
Trailing 12-Month GAAP Operating Margin: -27.3%
The result of a 2015 mega-merger between Kraft and Heinz, Kraft Heinz (NASDAQ: KHC) is a packaged foods giant whose products span coffee to cheese to packaged meat.
Why Do We Pass on KHC?
- Shrinking unit sales over the past two years suggest it might have to lower prices to stimulate growth
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 41.7 percentage points
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
Kraft Heinz’s stock price of $25.80 implies a valuation ratio of 9.8x forward P/E. To fully understand why you should be careful with KHC, check out our full research report (it’s free).
Fluence Energy (FLNC)
Trailing 12-Month GAAP Operating Margin: -1.1%
Pioneering the use of lithium-ion batteries for grid storage, Fluence (NASDAQ: FLNC) helps store renewable energy sources with battery systems.
Why Are We Cautious About FLNC?
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 7.2%
- Free cash flow margin dropped by 6.4 percentage points over the last five years, implying the company increased its investment activities to fend off competitors
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $7.48 per share, Fluence Energy trades at 102.5x forward P/E. Check out our free in-depth research report to learn more about why FLNC doesn’t pass our bar.
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