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.
Unprofitable companies face an uphill battle, but not all are created equal. Luckily for you, StockStory is here to separate the promising ones from the weak. Keeping that in mind, here are three unprofitable companiesto steer clear of and a few better alternatives.
Health Catalyst (HCAT)
Trailing 12-Month GAAP Operating Margin: -28%
Built on its "Health Catalyst Flywheel" methodology that emphasizes measurable outcomes, Health Catalyst (NASDAQ: HCAT) provides data and analytics technology and services that help healthcare organizations manage their data and drive measurable clinical, financial, and operational improvements.
Why Do We Steer Clear of HCAT?
- Muted 6% annual revenue growth over the last three years shows its demand lagged behind its software peers
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Health Catalyst’s stock price of $3.30 implies a valuation ratio of 0.7x forward price-to-sales. Check out our free in-depth research report to learn more about why HCAT doesn’t pass our bar.
Funko (FNKO)
Trailing 12-Month GAAP Operating Margin: -4.2%
Boasting partnerships with media franchises like Marvel and One Piece, Funko (NASDAQ: FNKO) is a company specializing in creating and distributing licensed pop culture collectibles.
Why Do We Pass on FNKO?
- Sales tumbled by 9.7% annually over the last two years, showing consumer trends are working against its favor
- 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
At $3.39 per share, Funko trades at 16.6x forward P/E. Read our free research report to see why you should think twice about including FNKO in your portfolio.
Tilray (TLRY)
Trailing 12-Month GAAP Operating Margin: -278%
Founded in 2013, Tilray Brands (NASDAQ: TLRY) engages in cannabis research, cultivation, and distribution, offering a range of medical and recreational cannabis products, hemp-based foods, and alcoholic beverages.
Why Do We Think TLRY Will Underperform?
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 255.8 percentage points
- Earnings per share fell by 32.4% annually over the last three years while its revenue grew, showing its incremental sales were much less profitable
- 8.1 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
Tilray is trading at $1.05 per share, or 14.7x forward EV-to-EBITDA. If you’re considering TLRY for your portfolio, see our FREE research report to learn more.
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