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.
A lack of profits can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. Keeping that in mind, here are three unprofitable companies to steer clear of and a few better alternatives.
Wix (WIX)
Trailing 12-month GAAP operating margin: -9.8%
Powering over 263 million registered users worldwide with its AI-driven tools, Wix (NASDAQ: WIX) provides a cloud-based platform that helps individuals and businesses create and manage professional websites without requiring coding skills.
Why Do We Think Twice About WIX?
- Products, pricing, or go-to-market strategy may need some adjustments as its 13.9% average billings growth over the last year was weak
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 17.5 percentage points
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 4.2 percentage points
Wix’s stock price of $77.52 implies a valuation ratio of 1.5x forward price-to-sales. Check out our free in-depth research report to learn more about why WIX doesn’t pass our bar.
Zillow (ZG)
Trailing 12-month GAAP operating margin: -5.1%
Founded by Expedia co-founders Lloyd Frink and Rich Barton, Zillow (NASDAQ: ZG) is the leading U.S. online real estate marketplace.
Why Do We Avoid ZG?
- Annual sales declines of 5.9% for the past five years show its products and services struggled to connect with the market
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Free cash flow margin is forecasted to grow by 1.2 percentage points in the coming year, potentially giving the company more chips to play with
At $31.11 per share, Zillow trades at 12x forward P/E. If you’re considering ZG for your portfolio, see our FREE research report to learn more.
Peabody Energy (BTU)
Trailing 12-month GAAP operating margin: -4.5%
Beginning with a single wagon hauling coal in Illinois back when Grover Cleveland was president, Peabody Energy (NYSE: BTU) mines coal used by electricity generators and steel manufacturers.
Why Are We Bearish on BTU?
- Sales trends were unexciting over the last five years as its 8% annual growth was below the typical energy upstream and integrated energy company
- Expenses have increased as a percentage of revenue over the last five years as its EBITDA margin fell by 30.8 percentage points
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Peabody Energy is trading at $16.19 per share, or 2.3x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including BTU in your portfolio.
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