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. That said, here is one unprofitable company with the potential to become an industry leader and two that may never reach the Promised Land.
Trailing 12-Month GAAP Operating Margin: -1.7%
Powering communications for tech giants like Microsoft, Google, and Zoom, Bandwidth (NASDAQ:BAND) provides cloud-based communications software and APIs that enable businesses to embed voice, messaging, and emergency services into their applications and platforms.
Why Is BAND Not Exciting?
Annual revenue growth of 12.9% over the last two years was below our standards for the software sector
Gross margin of 38.8% is way below its competitors, leaving less money to invest in areas like marketing and R&D
Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
Bandwidth’s stock price of $14.24 implies a valuation ratio of 0.5x forward price-to-sales. Read our free research report to see why you should think twice about including BAND in your portfolio, it’s free for active Edge members.
Trailing 12-Month GAAP Operating Margin: -10.6%
Founded by two brothers, Purple (NASDAQ:PRPL) creates sleep and home comfort products such as mattresses, pillows, and bedding accessories.
Why Do We Avoid PRPL?
Annual sales declines of 5.3% for the past five years show its products and services struggled to connect with the market
Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $0.79 per share, Purple trades at 5.5x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why PRPL doesn’t pass our bar.
Trailing 12-Month GAAP Operating Margin: -1.4%
Named after a database the founders had to painstakingly look after at their previous company, Datadog (NASDAQ:DDOG) provides a software platform that helps organizations monitor and secure their cloud applications, infrastructure, and services.
Why Should You Buy DDOG?
Ability to secure long-term commitments with customers is evident in its 26.5% ARR growth over the last year
Projected revenue growth of 21.7% for the next 12 months suggests its momentum from the last two years will persist
Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
