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.
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 companiesto steer clear of and a few better alternatives.
Trailing 12-Month GAAP Operating Margin: -5.9%
Founded by the former head of Google’s enterprise business, Upstart (NASDAQ:UPST) is an AI-powered lending platform facilitating loans for banks and consumers.
Why Does UPST Worry Us?
Software offerings aren’t resonating in this new AI paradigm as its revenue declined by 7.4% annually over the last three years
Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Upstart’s stock price of $67.25 implies a valuation ratio of 5.6x forward price-to-sales. Read our free research report to see why you should think twice about including UPST in your portfolio, it’s free.
Trailing 12-Month GAAP Operating Margin: -10.5%
With a primary focus on soda but also a presence in energy drinks and teas, Zevia (NYSE:ZVIA) is a better-for-you beverage company.
Why Are We Cautious About ZVIA?
Products fail to spark excitement with consumers, as seen in its flat sales over the last three years
Poor expense management has led to operating margin losses
Cash burn makes us question whether it can achieve sustainable long-term growth
Zevia is trading at $2.96 per share, or 1.2x forward price-to-sales. To fully understand why you should be careful with ZVIA, check out our full research report (it’s free).
Trailing 12-Month GAAP Operating Margin: -4.4%
Primarily offering prescription medicine, health, and beauty products, Walgreens Boots Alliance (NASDAQ:WBA) is a pharmacy chain formed through the 2014 major merger of American company Walgreens and European company Alliance Boots.
Why Are We Hesitant About WBA?
Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 3.8% for the last six years
Gross margin of 17.7% is an output of its commoditized inventory
6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
