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 steer clear of and a few better alternatives.
JFrog (FROG)
Trailing 12-Month GAAP Operating Margin: -22%
Named after the amphibian that continuously evolves from egg to tadpole to adult, JFrog (NASDAQ: FROG) provides a platform that helps organizations securely create, store, manage, and distribute software packages across any system.
Why Is FROG Not Exciting?
- Operating losses show it sacrificed profitability while scaling the business
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 8.9 percentage points
JFrog is trading at $48.23 per share, or 10.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than FROG.
PlayStudios (MYPS)
Trailing 12-Month GAAP Operating Margin: -12.8%
Founded by a team of former gaming industry executives, PlayStudios (NASDAQ: MYPS) offers free-to-play digital casino games.
Why Do We Avoid MYPS?
- Demand for its offerings was relatively low as its number of daily active users has underwhelmed
- Poor expense management has led to operating margin losses
- Earnings per share have dipped by 12.6% annually over the past three years, which is concerning because stock prices follow EPS over the long term
At $0.96 per share, PlayStudios trades at 2.4x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why MYPS doesn’t pass our bar.
RXO (RXO)
Trailing 12-Month GAAP Operating Margin: -1.2%
With access to millions of trucks, RXO (NYSE: RXO) offers full-truckload, less-than-truckload, and last-mile deliveries.
Why Are We Cautious About RXO?
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 5.4 percentage points
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 61.7% annually
- ROIC of -0.6% reflects management’s challenges in identifying attractive investment opportunities
RXO’s stock price of $16.92 implies a valuation ratio of 62.8x forward P/E. To fully understand why you should be careful with RXO, check out our full research report (it’s free).
Stocks We Like More
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