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. Keeping that in mind, here are three unprofitable companiesto steer clear of and a few better alternatives.
Opendoor (OPEN)
Trailing 12-Month GAAP Operating Margin: -4.4%
Founded by real estate guru Eric Wu, Opendoor (NASDAQ: OPEN) offers a technology-driven, convenient, and streamlined process to buy and sell homes.
Why Should You Dump OPEN?
- Number of homes purchased has disappointed over the past two years, indicating weak demand for its offerings
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Negative earnings profile makes it challenging to secure favorable financing terms from lenders
Opendoor’s stock price of $8.31 implies a valuation ratio of 1.7x forward price-to-sales. Check out our free in-depth research report to learn more about why OPEN doesn’t pass our bar.
Fortrea (FTRE)
Trailing 12-Month GAAP Operating Margin: -33.8%
Spun off from Labcorp in 2023 to focus exclusively on clinical research services, Fortrea (NASDAQ: FTRE) is a contract research organization that helps pharmaceutical, biotech, and medical device companies develop and bring their products to market through clinical trials and support services.
Why Is FTRE Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.6% annually over the last two years
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Fortrea is trading at $11.26 per share, or 18.3x forward P/E. Read our free research report to see why you should think twice about including FTRE in your portfolio.
Xerox (XRX)
Trailing 12-Month GAAP Operating Margin: -16%
Pioneering the modern office copier and inventing technologies like Ethernet and the laser printer, Xerox (NASDAQ: XRX) provides document management systems, printing technology, and workplace solutions to businesses of all sizes across the globe.
Why Do We Steer Clear of XRX?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 4.9% annually over the last five years
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $3.65 per share, Xerox trades at 3.9x forward P/E. If you’re considering XRX for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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