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 companiesthat don’t make the cut and some better opportunities instead.
Asure Software (ASUR)
Trailing 12-Month GAAP Operating Margin: -2.7%
Operating in the often-overlooked smaller metropolitan markets where HR expertise can be scarce, Asure Software (NASDAQ: ASUR) provides cloud-based human capital management software and services that help small and medium-sized businesses manage payroll, taxes, time tracking, and HR compliance.
Why Does ASUR Give Us Pause?
- Revenue increased by 12.3% annually over the last two years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- Estimated sales growth of 10.4% for the next 12 months implies demand will slow from its two-year trend
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 5.3% for the last year
Asure Software’s stock price of $8.77 implies a valuation ratio of 1.5x forward price-to-sales. Read our free research report to see why you should think twice about including ASUR in your portfolio.
Sleep Number (SNBR)
Trailing 12-Month GAAP Operating Margin: -6.4%
Known for mattresses that can be adjusted with regards to firmness, Sleep Number (NASDAQ: SNBR) manufactures and sells its own brand of bedding products such as mattresses, bed frames, and pillows.
Why Is SNBR Risky?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 44% annually, worse than its revenue
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $1.78 per share, Sleep Number trades at 10.1x forward EV-to-EBITDA. To fully understand why you should be careful with SNBR, check out our full research report (it’s free).
Sunrun (RUN)
Trailing 12-Month GAAP Operating Margin: -1.7%
Helping homeowners use solar energy to power their homes, Sunrun (NASDAQ: RUN) provides residential solar electricity, specializing in panel installation and leasing services.
Why Does RUN Fall Short?
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
Sunrun is trading at $14.48 per share, or 23.7x forward P/E. If you’re considering RUN for your portfolio, see our FREE research report to learn more.
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