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.
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 avoid and some better opportunities instead.
nLIGHT (LASR)
Trailing 12-Month GAAP Operating Margin: -10.2%
Founded by a former CEO and Harvard-educated entrepreneur Scott Keeneyn, nLIGHT (NASDAQ: LASR) offers semiconductor and fiber lasers to the industrial, aerospace & defense, and medical sectors.
Why Are We Cautious About LASR?
- Muted 3.2% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
nLIGHT is trading at $71.59 per share, or 221.6x forward P/E. Dive into our free research report to see why there are better opportunities than LASR.
Medifast (MED)
Trailing 12-Month GAAP Operating Margin: -3.7%
Known for its Optavia program that combines portion-controlled meal replacements with coaching, Medifast (NYSE: MED) has a broad product portfolio of bars, snacks, drinks, and desserts for those looking to lose weight or consume healthier foods.
Why Do We Avoid MED?
- Annual revenue declines of 37.7% over the last three years indicate problems with its market positioning
- Smaller revenue base of $385.8 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Earnings per share have dipped by 28.8% annually over the past three years, which is concerning because stock prices follow EPS over the long term
Medifast’s stock price of $10.84 implies a valuation ratio of 8x forward EV-to-EBITDA. To fully understand why you should be careful with MED, check out our full research report (it’s free).
NeoGenomics (NEO)
Trailing 12-Month GAAP Operating Margin: -15.9%
Operating a network of CAP-accredited and CLIA-certified laboratories across the United States and United Kingdom, NeoGenomics (NASDAQ: NEO) provides specialized cancer diagnostic testing services, including genetic analysis, molecular testing, and pathology consultation for oncologists and healthcare providers.
Why Should You Sell NEO?
- Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 3% annually
- Negative returns on capital show that some of its growth strategies have backfired
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $8.09 per share, NeoGenomics trades at 49.4x forward P/E. Check out our free in-depth research report to learn more about why NEO doesn’t pass our bar.
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