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 companiesthat don’t make the cut and some better opportunities instead.

Magnachip (MX)

Trailing 12-Month GAAP Operating Margin: -15.5%

With its technology found in common consumer electronics such as TVs and smartphones, Magnachip Semiconductor (NYSE: MX) is a provider of analog and mixed-signal semiconductors.

Why Do We Think MX Will Underperform?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 16.3% annually over the last five years
2. Cash burn has widened over the last five years, making us question whether it can reliably generate shareholder value
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $3.17 per share, Magnachip trades at 0.6x forward price-to-sales. Check out our free in-depth research report to learn more about why MX doesn’t pass our bar.

Teladoc (TDOC)

Trailing 12-Month GAAP Operating Margin: -10.5%

Founded to help people in rural areas get online medical consultations, Teladoc Health (NYSE: TDOC) is a telemedicine platform that facilitates remote doctor’s visits.

Why Does TDOC Give Us Pause?

1. Sales trends were unexciting over the last three years as its 4.4% annual growth was below the typical consumer internet company
2. Preference for prioritizing user growth over monetization has led to 7.1% annual drops in its average revenue per user
3. Sales are projected to remain flat over the next 12 months as demand decelerates from its three-year trend

Teladoc’s stock price of $8.20 implies a valuation ratio of 4.9x forward EV/EBITDA. To fully understand why you should be careful with TDOC, check out our full research report (it’s free).

Redwire (RDW)

Trailing 12-Month GAAP Operating Margin: -41.5%

Based in Jacksonville, Florida, Redwire (NYSE: RDW) is a provider of systems and components used in space infrastructure.

Why Do We Steer Clear of RDW?

1. Historically negative EPS raises concerns for risk-averse investors and makes its earnings potential harder to gauge
2. 27.3 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

Redwire is trading at $9.04 per share, or 10.1x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including RDW in your portfolio.

Stocks We Like More

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