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.
A lack of profits can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. That said, here are three unprofitable companiesto avoid and some better opportunities instead.
Snap (SNAP)
Trailing 12-Month GAAP Operating Margin: -11.7%
Founded by Stanford University students Evan Spiegel, Reggie Brown, and Bobby Murphy, and originally called Picaboo, Snapchat (NYSE: SNAP) is an image centric social media network.
Why Do We Think Twice About SNAP?
- Decision to emphasize platform growth over monetization has contributed to sluggish trends in its average revenue per user
- Costs have risen faster than its revenue over the last few years, causing its EBITDA margin to decline by 5.2 percentage points
- Earnings per share fell by 10.2% annually over the last three years while its revenue grew, showing its incremental sales were much less profitable
At $8.44 per share, Snap trades at 22x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than SNAP.
Icahn Enterprises (IEP)
Trailing 12-Month GAAP Operating Margin: -6.6%
Founded in 1987, Icahn Enterprises (NASDAQ: IEP) is a diversified holding company primarily engaged in investment and asset management across various sectors.
Why Are We Cautious About IEP?
- Annual sales declines of 14.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- EBITDA losses may force it to accept punitive lending terms or high-cost debt
Icahn Enterprises’s stock price of $8.48 implies a valuation ratio of 0.4x forward price-to-sales. If you’re considering IEP for your portfolio, see our FREE research report to learn more.
Walgreens (WBA)
Trailing 12-Month GAAP Operating Margin: -4.4%
Primarily offering prescription medicine, health, and beauty products, Walgreens Boots Alliance (NASDAQ: WBA) is a pharmacy chain formed through the 2014 major merger of American company Walgreens and European company Alliance Boots.
Why Are We Wary of WBA?
- Annual sales growth of 2.9% over the last six years lagged behind its consumer retail peers as its large revenue base made it difficult to generate incremental demand
- Widely-available products (and therefore stiff competition) result in an inferior gross margin of 18% that must be offset through higher volumes
- 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Walgreens is trading at $11.24 per share, or 7.4x forward P/E. Read our free research report to see why you should think twice about including WBA in your portfolio.
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