Unprofitable companies can burn through cash quickly, leaving investors exposed if they fail to turn things around. Without a clear path to profitability, these businesses risk running out of capital or relying on dilutive fundraising.
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 is one unprofitable company with the potential to become an industry leader and two best left off your radar.
Two Stocks to Sell:
The Honest Company (HNST)
Trailing 12-Month GAAP Operating Margin: -5%
Co-founded by actress Jessica Alba, The Honest Company (NASDAQ: HNST) sells diapers and wipes, skin care products, and household cleaning products.
Why Do We Pass on HNST?
- 5.8% annual revenue growth over the last three years was slower than its consumer staples peers
- Modest revenue base of $371.3 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Negative returns on capital show management lost money while trying to expand the business
At $2.74 per share, The Honest Company trades at 29.6x forward P/E. If you’re considering HNST for your portfolio, see our FREE research report to learn more.
CoStar (CSGP)
Trailing 12-Month GAAP Operating Margin: -2.2%
With a research department that makes over 10,000 property updates daily to its 35-year-old database, CoStar Group (NASDAQ: CSGP) provides comprehensive real estate data, analytics, and online marketplaces for commercial and residential properties in the U.S. and U.K.
Why Are We Cautious About CSGP?
- Earnings per share fell by 2.7% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Free cash flow margin dropped by 13.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
CoStar’s stock price of $43.29 implies a valuation ratio of 33.1x forward P/E. To fully understand why you should be careful with CSGP, check out our full research report (it’s free).
One Stock to Buy:
Natera (NTRA)
Trailing 12-Month GAAP Operating Margin: -16.6%
Founded in 2003 as Gene Security Network before rebranding in 2012, Natera (NASDAQ: NTRA) develops and commercializes genetic tests for prenatal screening, cancer detection, and organ transplant monitoring using its proprietary cell-free DNA technology.
Why Is NTRA a Good Business?
- Average unit sales growth of 19.5% over the past two years reflects steady demand for its products
- Adjusted operating margin expanded by 32 percentage points over the last two years as it scaled and became more efficient
- Free cash flow margin is now positive, showing the company is at an important crossroads
Natera is trading at $199.10 per share, or 10.7x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
