Unprofitable companies can burn through cash quickly, leaving investors exposed if they fail to turn things around. Without a clear path to profitability, these businesses risk running out of capital or relying on dilutive fundraising.
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 with the potential to become an industry leader and two that may never reach the Promised Land.
Two Stocks to Sell:
Sweetgreen (SG)
Trailing 12-Month GAAP Operating Margin: -20.5%
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 Is SG Risky?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Free cash flow margin dropped by 11.5 percentage points over the last year, implying the company became more capital intensive as competition picked up
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Sweetgreen is trading at $5.24 per share, or 291.4x forward EV-to-EBITDA. To fully understand why you should be careful with SG, check out our full research report (it’s free).
ChargePoint (CHPT)
Trailing 12-Month GAAP Operating Margin: -51.1%
The most prominent EV charging company during the COVID bull market, ChargePoint (NYSE: CHPT) is a provider of electric vehicle charging technology solutions in North America and Europe.
Why Do We Think Twice About CHPT?
- Annual sales declines of 9.9% for the past two years show its products and services struggled to connect with the market during this cycle
- Cash-burning history makes us doubt the long-term viability of its business model
- EBITDA losses may force it to accept punitive lending terms or high-cost debt
ChargePoint’s stock price of $5.38 implies a valuation ratio of 0.3x forward price-to-sales. Check out our free in-depth research report to learn more about why CHPT doesn’t pass our bar.
One Stock to Watch:
Concentrix (CNXC)
Trailing 12-Month GAAP Operating Margin: -9.7%
With a team of approximately 450,000 employees across 75 countries, Concentrix (NASDAQ: CNXC) designs and delivers customer experience solutions that help global brands manage their customer interactions across digital channels and contact centers.
Why Does CNXC Stand Out?
- Market share has increased this cycle as its 15.3% annual revenue growth over the last five years was exceptional
- $9.95 billion in revenue allows it to spread its fixed costs across a wider base
At $24.68 per share, Concentrix trades at 2.2x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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