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.
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 companiesto steer clear of and a few better alternatives.
Offerpad (OPAD)
Trailing 12-Month GAAP Operating Margin: -6.3%
Known for giving homeowners cash offers within 24 hours, Offerpad (NYSE: OPAD) operates a tech-enabled platform specializing in direct home buying and selling solutions.
Why Do We Pass on OPAD?
- Performance surrounding its homes sold has lagged its peers
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 6.9% for the last two years
- Unprofitable operations could lead to additional rounds of dilutive equity financing if the credit window closes
Offerpad is trading at $0.71 per share, or 0.1x forward price-to-sales. Read our free research report to see why you should think twice about including OPAD in your portfolio.
agilon health (AGL)
Trailing 12-Month GAAP Operating Margin: -7.5%
Transforming how doctors care for seniors by shifting financial incentives from volume to outcomes, agilon health (NYSE: AGL) provides a platform that helps primary care physicians transition to value-based care models for Medicare patients through long-term partnerships and global capitation arrangements.
Why Is AGL Not Exciting?
- Underwhelming customer growth over the past two years shows the company faced challenges in winning new contracts
- Projected sales are flat for the next 12 months, implying demand will slow from its two-year trend
- Cash-burning history makes us doubt the long-term viability of its business model
At $85.68 per share, agilon health trades at 70.4x forward EV-to-EBITDA. If you’re considering AGL for your portfolio, see our FREE research report to learn more.
Navient (NAVI)
Trailing 12-Month GAAP Operating Margin: -9.5%
Spun off from Sallie Mae in 2014 to handle the company's loan servicing and collection operations, Navient (NASDAQ: NAVI) provides education loan servicing and business processing solutions that help manage federal student loans, private education loans, and government services.
Why Should You Dump NAVI?
- Annual sales declines of 21.3% for the past five years show its products and services struggled to connect with the market during this cycle
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- Elevated debt-to-equity ratio of 18.9× suggests the firm is overleveraged and may struggle to secure additional financing
Navient’s stock price of $8.45 implies a valuation ratio of 11.3x forward P/E. To fully understand why you should be careful with NAVI, check out our full research report (it’s free).
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