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 companies to avoid and some better opportunities instead.
Wix (WIX)
Trailing 12-Month GAAP Operating Margin: -9.8%
Powering over 263 million registered users worldwide with its AI-driven tools, Wix (NASDAQ: WIX) provides a cloud-based platform that helps individuals and businesses create and manage professional websites without requiring coding skills.
Why Are We Cautious About WIX?
- Average billings growth of 13.9% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 17.5 percentage points
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 3.9 percentage points over the next year
At $76.60 per share, Wix trades at 1.4x forward price-to-sales. Check out our free in-depth research report to learn more about why WIX doesn’t pass our bar.
Wabash (WNC)
Trailing 12-Month GAAP Operating Margin: -4.7%
With its first trailer reportedly built on two sawhorses, Wabash (NYSE: WNC) offers semi trailers, liquid transportation containers, truck bodies, and equipment for moving goods.
Why Is WNC Risky?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 24.9% declines over the past two years
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Wabash is trading at $12.54 per share, or 20.2x forward EV-to-EBITDA. If you’re considering WNC for your portfolio, see our FREE research report to learn more.
Transocean (RIG)
Trailing 12-Month GAAP Operating Margin: -24.2%
Operating one of the world's most capable fleets of ultra-deepwater drillships and harsh environment rigs, Transocean (NYSE: RIG) operates drilling rigs that energy companies rent to drill oil and gas wells in deep ocean waters.
Why Do We Think RIG Will Underperform?
- Sales tumbled by 3.3% annually over the last ten years, showing market trends are working against it during this cycle
- Gross margin of 37.8% is below its competitors, leaving less money to invest in exploration and production
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 5.2% for the last five years
Transocean’s stock price of $5.66 implies a valuation ratio of 32.7x forward P/E. Dive into our free research report to see why there are better opportunities than RIG.
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