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.
Unprofitable companies face an uphill battle, but not all are created equal. Luckily for you, StockStory is here to separate the promising ones from the weak. That said, here are three unprofitable companiesto steer clear of and a few better alternatives.
Bandwidth (BAND)
Trailing 12-Month GAAP Operating Margin: -1.7%
Powering communications for tech giants like Microsoft, Google, and Zoom, Bandwidth (NASDAQ: BAND) provides cloud-based communications software and APIs that enable businesses to embed voice, messaging, and emergency services into their applications and platforms.
Why Are We Wary of BAND?
- Revenue increased by 12.9% annually over the last two years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- Sky-high servicing costs result in an inferior gross margin of 38.8% that must be offset through increased usage
- Operating margin expanded by 2.2 percentage points over the last year as it scaled and became more efficient
At $13.45 per share, Bandwidth trades at 0.5x forward price-to-sales. Read our free research report to see why you should think twice about including BAND in your portfolio.
PubMatic (PUBM)
Trailing 12-Month GAAP Operating Margin: -3.8%
Powering billions of daily ad impressions across the open internet, PubMatic (NASDAQ: PUBM) operates a technology platform that helps publishers maximize revenue from their digital advertising inventory while giving advertisers more control and transparency.
Why Should You Dump PUBM?
- Below-average net revenue retention rate of 107% suggests it has some trouble expanding within existing accounts
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
- Free cash flow margin is forecasted to shrink by 8.4 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
PubMatic is trading at $6.50 per share, or 1.1x forward price-to-sales. To fully understand why you should be careful with PUBM, check out our full research report (it’s free).
Offerpad (OPAD)
Trailing 12-Month GAAP Operating Margin: -6.3%
Known for giving homeowners cash offers within 24 hours, Offerpad (NYSE: OPAD) operates a tech-enabled platform specializing in direct home buying and selling solutions.
Why Should You Sell OPAD?
- Demand for its offerings was relatively low as its number of homes sold has underwhelmed
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 10.6 percentage points
- EBITDA losses may force it to accept punitive lending terms or high-cost debt
Offerpad’s stock price of $0.93 implies a valuation ratio of 0x forward price-to-sales. Dive into our free research report to see why there are better opportunities than OPAD.
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