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.
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.
Elastic (ESTC)
Trailing 12-Month GAAP Operating Margin: -1.7%
Built on the powerful open-source Elasticsearch technology that powers search functionality for thousands of websites worldwide, Elastic (NYSE: ESTC) provides a search and AI platform that helps organizations find insights from their data, monitor applications, and protect against security threats.
Why Does ESTC Give Us Pause?
- Offerings struggled to generate meaningful interest as its average billings growth of 12.5% over the last year did not impress
- Estimated sales growth of 13.6% for the next 12 months implies demand will slow from its two-year trend
- Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
Elastic’s stock price of $47.05 implies a valuation ratio of 2.6x forward price-to-sales. Read our free research report to see why you should think twice about including ESTC in your portfolio.
Kulicke and Soffa (KLIC)
Trailing 12-Month GAAP Operating Margin: -10.5%
Headquartered in Singapore, Kulicke & Soffa (NASDAQ: KLIC) is a provider of production equipment and tools used to assemble semiconductor devices
Why Do We Think Twice About KLIC?
- Sales tumbled by 1.6% annually over the last five years, showing market trends are working against its favor during this cycle
- Inability to adjust its cost structure while its revenue declined over the last five years led to a 40.3 percentage point drop in the company’s operating margin
- Sales were less profitable over the last five years as its earnings per share fell by 29.8% annually, worse than its revenue declines
Kulicke and Soffa is trading at $85.50 per share, or 28.6x forward P/E. Dive into our free research report to see why there are better opportunities than KLIC.
PAR Technology (PAR)
Trailing 12-Month GAAP Operating Margin: -15.1%
Originally founded in 1968 as a defense contractor for the U.S. government, PAR Technology (NYSE: PAR) provides cloud-based software, payment processing, and hardware solutions that help restaurants manage everything from point-of-sale to customer loyalty programs.
Why Are We Hesitant About PAR?
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Negative returns on capital show management lost money while trying to expand the business
- 13× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $13.89 per share, PAR Technology trades at 26.8x forward P/E. To fully understand why you should be careful with PAR, check out our full research report (it’s free).
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