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 avoid and some better opportunities instead.
Asure (ASUR)
Trailing 12-Month GAAP Operating Margin: -10%
Created from the merger of two small workforce management companies in 2007, Asure (NASDAQ: ASUR) provides cloud based payroll and HR software for small and medium-sized businesses (SMBs).
Why Are We Cautious About ASUR?
- Revenue increased by 15.1% annually over the last three years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- Offerings struggled to generate meaningful interest as its average billings growth of 7.9% over the last year did not impress
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 5.4 percentage points
At $9.55 per share, Asure trades at 1.9x forward price-to-sales. To fully understand why you should be careful with ASUR, check out our full research report (it’s free).
BeautyHealth (SKIN)
Trailing 12-Month GAAP Operating Margin: -19.5%
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 Do We Pass on SKIN?
- Annual revenue growth of 3.8% over the last three years was below our standards for the consumer staples sector
- Suboptimal cost structure is highlighted by its history of operating margin losses
- 10× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
BeautyHealth is trading at $1.54 per share, or 12x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SKIN.
Sphere Entertainment (SPHR)
Trailing 12-Month GAAP Operating Margin: -37.5%
Famous for its viral Las Vegas Sphere venue, Sphere Entertainment (NYSE: SPHR) hosts live entertainment events and distributes content across various media platforms.
Why Do We Avoid SPHR?
- Sales trends were unexciting over the last five years as its 2.4% annual growth was below the typical consumer discretionary company
- Negative free cash flow raises questions about the return timeline for its investments
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Sphere Entertainment’s stock price of $38.19 implies a valuation ratio of 7.6x forward EV-to-EBITDA. If you’re considering SPHR for your portfolio, see our FREE research report to learn more.
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