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.
Zillow (ZG)
Trailing 12-Month GAAP Operating Margin: -8.8%
Founded by Expedia co-founders Lloyd Frink and Rich Barton, Zillow (NASDAQ:ZG) is the leading U.S. online real estate marketplace.
Why Are We Hesitant About ZG?
- Products and services have few die-hard fans as sales have declined by 4% annually over the last five years
- Persistent operating losses suggest the business manages its expenses poorly
- Negative returns on capital show that some of its growth strategies have backfired
At $65.75 per share, Zillow trades at 34.2x forward P/E. Read our free research report to see why you should think twice about including ZG in your portfolio.
Sweetgreen (SG)
Trailing 12-Month GAAP Operating Margin: -14.1%
Founded in 2007 by three Georgetown University alum, Sweetgreen (NYSE:SG) is a casual quick service chain known for its healthy salads and bowls.
Why Does SG Fall Short?
- Historical operating losses point to an inefficient cost structure
- Negative free cash flow raises questions about the return timeline for its investments
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Sweetgreen is trading at $19.41 per share, or 65.2x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SG.
MasterCraft (MCFT)
Trailing 12-Month GAAP Operating Margin: -2.3%
Started by a waterskiing instructor, MasterCraft (NASDAQ:MCFT) specializes in designing, manufacturing, and selling sport boats.
Why Does MCFT Give Us Pause?
- Performance surrounding its boats sold has lagged its peers
- Estimated sales growth of 6.2% for the next 12 months is soft and implies weaker demand
- Sales were less profitable over the last five years as its earnings per share fell by 26.6% annually, worse than its revenue declines
MasterCraft’s stock price of $16.81 implies a valuation ratio of 14.4x forward P/E. To fully understand why you should be careful with MCFT, check out our full research report (it’s free).
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