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 companiesto steer clear of and a few better alternatives.
BeautyHealth (SKIN)
Trailing 12-Month GAAP Operating Margin: -14%
Operating in the emerging beauty health category, the appropriately named BeautyHealth (NASDAQ: SKIN) is a skincare company best known for its Hydrafacial product that cleanses and hydrates skin.
Why Should You Sell SKIN?
- Annual revenue declines of 1.6% over the last three years indicate problems with its market positioning
- Smaller revenue base of $310.1 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Poor expense management has led to operating margin losses
At $2 per share, BeautyHealth trades at 13.3x forward EV-to-EBITDA. To fully understand why you should be careful with SKIN, check out our full research report (it’s free).
Topgolf Callaway (MODG)
Trailing 12-Month GAAP Operating Margin: -30.3%
Formed between the merger of Callaway and Topgolf, Topgolf Callaway (NYSE: MODG) sells golf equipment and operates technology-driven golf entertainment venues.
Why Do We Pass on MODG?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Earnings per share fell by 39.2% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Topgolf Callaway’s stock price of $9.48 implies a valuation ratio of 3.8x forward EV-to-EBITDA. If you’re considering MODG for your portfolio, see our FREE research report to learn more.
NN (NNBR)
Trailing 12-Month GAAP Operating Margin: -5%
Formerly known as Nuturn, NN (NASDAQ: NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.
Why Do We Steer Clear of NNBR?
- Annual sales declines of 6.6% for the past two years show its products and services struggled to connect with the market during this cycle
- Cash-burning history makes us doubt the long-term viability of its business model
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
NN is trading at $2.11 per share, or 60.3x forward P/E. Check out our free in-depth research report to learn more about why NNBR doesn’t pass our bar.
Stocks We Like More
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