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.
Unprofitable companies face an uphill battle, but not all are created equal. Luckily for you, StockStory is here to separate the promising ones from the weak. Keeping that in mind, here are three unprofitable companiesto avoid and some better opportunities instead.
ChargePoint (CHPT)
Trailing 12-Month GAAP Operating Margin: -58.8%
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 Does CHPT Worry Us?
- Annual sales declines of 11.2% for the past two years show its products and services struggled to connect with the market during this cycle
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $9.70 per share, ChargePoint trades at 10.3x forward price-to-sales. Read our free research report to see why you should think twice about including CHPT in your portfolio.
AMC Entertainment (AMC)
Trailing 12-Month GAAP Operating Margin: -2.6%
With a profile that was raised due to meme stock mania beginning in 2021, AMC Entertainment (NYSE:AMC) operates movie theaters primarily in the US and Europe.
Why Is AMC Not Exciting?
- Products and services aren't resonating with the market as its revenue declined by 2.7% annually over the last five years
- Negative free cash flow raises questions about the return timeline for its investments
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
AMC Entertainment is trading at $2.86 per share, or 2.1x forward EV-to-EBITDA. To fully understand why you should be careful with AMC, check out our full research report (it’s free).
Owens & Minor (OMI)
Trailing 12-Month GAAP Operating Margin: -2%
With roots dating back to 1882 and operations spanning approximately 80 countries, Owens & Minor (NYSE:OMI) is a healthcare solutions company that manufactures medical supplies, distributes products to healthcare providers, and delivers medical equipment directly to patients.
Why Does OMI Fall Short?
- Sizable revenue base leads to growth challenges as its 3.2% annual revenue increases over the last two years fell short of other healthcare companies
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Owens & Minor’s stock price of $6.53 implies a valuation ratio of 3.6x forward P/E. Check out our free in-depth research report to learn more about why OMI doesn’t pass our bar.
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