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.
A lack of profits can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. Keeping that in mind, here are three unprofitable companiesto avoid and some better opportunities instead.
The RealReal (REAL)
Trailing 12-Month GAAP Operating Margin: -8.3%
Founded by consignment store aficionado Julie Wainwright, The RealReal (NASDAQ: REAL) is an online marketplace for buying and selling secondhand luxury goods.
Why Do We Think Twice About REAL?
- Focus on expanding its platform came at the expense of monetization as its average revenue per user fell by 5.5% annually
- Cash-burning history makes us doubt the long-term viability of its business model
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
The RealReal’s stock price of $5.35 implies a valuation ratio of 22.1x forward EV/EBITDA. If you’re considering REAL for your portfolio, see our FREE research report to learn more.
Sportsman's Warehouse (SPWH)
Trailing 12-Month GAAP Operating Margin: -1.1%
A go-to destination for individuals passionate about hunting, fishing, camping, hiking, shooting sports, and more, Sportsman's Warehouse (NASDAQ:SPWH) is an American specialty retailer offering a diverse range of active gear, equipment, and apparel.
Why Are We Out on SPWH?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Historical operating margin losses point to an inefficient cost structure
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Sportsman's Warehouse is trading at $3.31 per share, or 3.4x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SPWH.
Fluence Energy (FLNC)
Trailing 12-Month GAAP Operating Margin: -1.1%
Pioneering the use of lithium-ion batteries for grid storage, Fluence (NASDAQ:FLNC) helps store renewable energy sources with battery systems.
Why Are We Hesitant About FLNC?
- Gross margin of 6.4% reflects its high production costs
- Free cash flow margin dropped by 12 percentage points over the last five years, implying the company increased its investment activities to fend off competitors
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $8.67 per share, Fluence Energy trades at 20.7x forward P/E. Read our free research report to see why you should think twice about including FLNC in your portfolio.
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