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. That said, here is one unprofitable company investing heavily to secure market share and two that could struggle to survive.
Two Stocks to Sell:
Chegg (CHGG)
Trailing 12-Month GAAP Operating Margin: -5.3%
Started as a physical textbook rental service, Chegg (NYSE: CHGG) is now a digital platform addressing student pain points by providing study and academic assistance.
Why Do We Steer Clear of CHGG?
- Services Subscribers have declined by 27% annually over the last two years, suggesting it may need to revamp its features or user experience to stay competitive
- Inability to adjust its cost structure while its revenue declined over the last few years led to a 13.5 percentage point drop in the company’s EBITDA margin
- Earnings per share have contracted by 26% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
At $0.75 per share, Chegg trades at 2.8x forward EV/EBITDA. To fully understand why you should be careful with CHGG, check out our full research report (it’s free).
Cable One (CABO)
Trailing 12-Month GAAP Operating Margin: -17.5%
Founded in 1986, Cable One (NYSE: CABO) provides high-speed internet, cable television, and telephone services, primarily in smaller markets across the United States.
Why Are We Out on CABO?
- Demand for its offerings was relatively low as its number of residential data subscribers has underwhelmed
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 2.6 percentage points over the next year
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Cable One’s stock price of $7.32 implies a valuation ratio of 3.9x forward EV-to-EBITDA. If you’re considering CABO for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Coursera (COUR)
Trailing 12-Month GAAP Operating Margin: -17.8%
Founded by two Stanford University computer science professors, Coursera (NYSE: COUR) is an online learning platform that offers courses, specializations, and degrees from top universities and organizations around the world.
Why Does COUR Stand Out?
- 15.1% annual revenue growth over the last three years surpassed the sector average as its platform resonated with consumers
- Demand for the next 12 months is expected to accelerate above its three-year trend as Wall Street forecasts robust revenue growth of 68%
- Performance over the past three years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 68% outpaced its revenue gains
Coursera is trading at $5 per share, or 0.9x forward EV/EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.
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