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. Keeping that in mind, here are three unprofitable companiesto steer clear of and a few better alternatives.
Offerpad (OPAD)
Trailing 12-Month GAAP Operating Margin: -6.3%
Known for giving homeowners cash offers within 24 hours, Offerpad (NYSE: OPAD) operates a tech-enabled platform specializing in direct home buying and selling solutions.
Why Is OPAD Risky?
- Sluggish trends in its homes sold suggest customers aren’t adopting its solutions as quickly as the company hoped
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 6.9% for the last two years
- Negative EBITDA restricts its access to capital and increases the probability of shareholder dilution if things turn unexpectedly
At $5.17 per share, Offerpad trades at 0.1x forward price-to-sales. Check out our free in-depth research report to learn more about why OPAD doesn’t pass our bar.
DNOW (DNOW)
Trailing 12-Month GAAP Operating Margin: -4.6%
Spun off from National Oilwell Varco, DNOW (NYSE: DNOW) provides distribution and supply chain solutions for the energy and industrial end markets.
Why Are We Hesitant About DNOW?
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 6.9 percentage points
- Revenue growth over the past two years was nullified by the company’s new share issuances as its earnings per share fell by 13.9% annually
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
DNOW’s stock price of $13.90 implies a valuation ratio of 0.5x forward price-to-sales. To fully understand why you should be careful with DNOW, check out our full research report (it’s free).
3D Systems (DDD)
Trailing 12-Month GAAP Operating Margin: -17%
Founded by the inventor of stereolithography, 3D Systems (NYSE: DDD) engineers, manufactures, and sells 3D printers and other related products to the aerospace, automotive, healthcare, and consumer goods industries.
Why Should You Dump DDD?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.3% annually over the last five years
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
3D Systems is trading at $2.63 per share, or 1x forward price-to-sales. Read our free research report to see why you should think twice about including DDD in your portfolio.
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