Unprofitable companies face headwinds as they struggle to keep operating expenses under control. Some may be investing heavily, but the majority fail to convert spending into sustainable growth.
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.
Marqeta (MQ)
Trailing 12-Month GAAP Operating Margin: -7.4%
Powering the cards behind innovative fintech services like Block's Cash App, Marqeta (NASDAQ: MQ) provides a cloud-based platform that allows businesses to create customized payment card programs and process card transactions.
Why Are We Hesitant About MQ?
- Annual sales declines of 3.9% for the past two years show its products and services struggled to connect with the market
- High servicing costs result in a relatively inferior gross margin of 70% that must be offset through increased usage
- Overall productivity fell over the last year as its plummeting sales were accompanied by a decline in its operating margin
At $4.27 per share, Marqeta trades at 2.6x forward price-to-sales. Dive into our free research report to see why there are better opportunities than MQ.
Tandem Diabetes (TNDM)
Trailing 12-Month GAAP Operating Margin: -18.5%
With technology that automatically adjusts insulin delivery based on continuous glucose monitoring data, Tandem Diabetes Care (NASDAQ: TNDM) develops and manufactures automated insulin delivery systems that help people with diabetes manage their blood glucose levels.
Why Do We Think TNDM Will Underperform?
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 18.5% annually while its revenue grew
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- EBITDA losses may force it to accept punitive lending terms or high-cost debt
Tandem Diabetes’s stock price of $22.13 implies a valuation ratio of 27.8x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including TNDM in your portfolio.
Fastly (FSLY)
Trailing 12-Month GAAP Operating Margin: -19.1%
Taking its name from the core advantage it delivers to customers, Fastly (NYSE: FSLY) operates an edge cloud platform that processes, secures, and delivers web content as close to end users as possible, enabling faster digital experiences.
Why Is FSLY Risky?
- Net revenue retention rate of 105% trails the industry benchmark of 110%+ and shows it has a tough time increasing customer spending
- Bad unit economics and steep infrastructure costs are reflected in its gross margin of 57.1%, one of the worst among software companies
- Persistent operating margin losses suggest the business manages its expenses poorly
Fastly is trading at $23.68 per share, or 4.8x forward price-to-sales. Check out our free in-depth research report to learn more about why FSLY doesn’t pass our bar.
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