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 is one unprofitable company with the potential to become an industry leader and two that may never reach the Promised Land.
Two Stocks to Sell:
Workiva (WK)
Trailing 12-Month GAAP Operating Margin: -7.5%
Nicknamed "the Excel killer" by some finance professionals for its ability to eliminate spreadsheet chaos, Workiva (NYSE: WK) provides a cloud-based platform that enables organizations to streamline financial reporting, ESG, and compliance processes with connected data and automation.
Why Does WK Give Us Pause?
- Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 3.1 percentage points over the next year
Workiva is trading at $60.50 per share, or 3.7x forward price-to-sales. To fully understand why you should be careful with WK, check out our full research report (it’s free).
Sleep Number (SNBR)
Trailing 12-Month GAAP Operating Margin: -2.5%
Known for mattresses that can be adjusted with regards to firmness, Sleep Number (NASDAQ: SNBR) manufactures and sells its own brand of bedding products such as mattresses, bed frames, and pillows.
Why Do We Pass on SNBR?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 39.1% annually, worse than its revenue
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Sleep Number’s stock price of $9.71 implies a valuation ratio of 15.6x forward EV-to-EBITDA. If you’re considering SNBR for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Confluent (CFLT)
Trailing 12-Month GAAP Operating Margin: -32.6%
Built by the original creators of Apache Kafka, the popular open-source messaging system, Confluent (NASDAQ: CFLT) provides a data infrastructure platform that enables organizations to connect their applications, systems, and data layers around real-time data streams.
Why Could CFLT Be a Winner?
- Billings growth has averaged 24.2% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
- Sales outlook for the upcoming 12 months implies the business will stay on its desirable two-year growth trajectory
- Gross margin of 74.3% is reasonable for the industry and allows for steady investments in marketing and R&D
At $30.58 per share, Confluent trades at 7.9x forward price-to-sales. Is now a good time to buy? See for yourself in our full research report, it’s free.
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