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.
Magnachip (MX)
Trailing 12-Month GAAP Operating Margin: -18.4%
With its technology found in common consumer electronics such as TVs and smartphones, Magnachip Semiconductor (NYSE: MX) is a provider of analog and mixed-signal semiconductors.
Why Is MX Risky?
- Annual sales declines of 18.8% for the past five years show its products and services struggled to connect with the market during this cycle
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 42 percentage points
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $2.94 per share, Magnachip trades at 0.6x forward price-to-sales. Check out our free in-depth research report to learn more about why MX doesn’t pass our bar.
EVgo (EVGO)
Trailing 12-Month GAAP Operating Margin: -28.8%
Created through a settlement between NRG Energy and the California Public Utilities Commission, EVgo (NASDAQ: EVGO) is a provider of electric vehicle charging solutions, operating fast charging stations across the United States.
Why Does EVGO Fall Short?
- Poor expense management has led to operating margin losses
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
EVgo’s stock price of $1.99 implies a valuation ratio of 28.5x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including EVGO in your portfolio.
Cogent (CCOI)
Trailing 12-Month GAAP Operating Margin: -10.4%
Operating a massive network spanning 20,000 miles of fiber optic cable and connecting to over 3,200 buildings worldwide, Cogent Communications (NASDAQ: CCOI) provides high-speed Internet access, private network services, and data center colocation to businesses and bandwidth-intensive organizations across 54 countries.
Why Should You Dump CCOI?
- Muted 1.8% annual revenue growth over the last two years shows its demand lagged behind its business services peers
- Diminishing returns on capital suggest its earlier profit pools are drying up
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Cogent is trading at $20.18 per share, or 9.8x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than CCOI.
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