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.
Finding the right unprofitable companies is difficult, which is why we started StockStory — to help you navigate the market. That said, here are three unprofitable companies that don’t make the cut and some better opportunities instead.
Opendoor (OPEN)
Trailing 12-Month GAAP Operating Margin: -16%
Founded by real estate guru Eric Wu, Opendoor (NASDAQ: OPEN) offers a technology-driven, convenient, and streamlined process to buy and sell homes.
Why Do We Pass on OPEN?
- Sluggish trends in its homes sold suggest customers aren’t adopting its solutions as quickly as the company hoped
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 0.4% for the last two years
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $2.55 per share, Opendoor trades at 169.8x forward EV-to-EBITDA. If you’re considering OPEN for your portfolio, see our FREE research report to learn more.
Simply Good Foods (SMPL)
Trailing 12-Month GAAP Operating Margin: -17.1%
Best known for its Atkins brand that was inspired by the popular diet of the same name, Simply Good Foods (NASDAQ: SMPL) is a packaged food company whose offerings help customers achieve their healthy eating or weight loss goals.
Why Is SMPL Risky?
- Lackluster 5.2% annual revenue growth over the last three years indicates the company is losing ground to competitors
- Sales are projected to tank by 8.9% over the next 12 months as demand evaporates
- Efficiency has decreased over the last year as its operating margin fell by 31.9 percentage points
Simply Good Foods is trading at $9.52 per share, or 5.8x forward P/E. To fully understand why you should be careful with SMPL, check out our full research report (it’s free).
Ducommun (DCO)
Trailing 12-Month GAAP Operating Margin: -2.6%
California’s oldest company, Ducommun (NYSE: DCO) is a provider of engineering and manufacturing services for high-performance products primarily within the aerospace and defense industries.
Why Are We Wary of DCO?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 16% declines over the past two years
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 8.9 percentage points
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Ducommun’s stock price of $174.66 implies a valuation ratio of 35.3x forward P/E. Check out our free in-depth research report to learn more about why DCO doesn’t pass our bar.
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