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 are three unprofitable companiesto steer clear of and a few better alternatives.
The RealReal (REAL)
Trailing 12-Month GAAP Operating Margin: -6.7%
Founded by consignment store aficionado Julie Wainwright, The RealReal (NASDAQ: REAL) is an online marketplace for buying and selling secondhand luxury goods.
Why Does REAL Give Us Pause?
- Annual revenue growth of 4.1% over the last three years was below our standards for the consumer internet sector
- Preference for prioritizing user growth over monetization has led to 11.7% annual drops in its average revenue per user
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
The RealReal’s stock price of $12.60 implies a valuation ratio of 34.6x forward EV/EBITDA. To fully understand why you should be careful with REAL, check out our full research report (it’s free for active Edge members).
Bally's (BALY)
Trailing 12-Month GAAP Operating Margin: -8.5%
Headquartered in Providence, Rhode Island, Bally's Corporation (NYSE: BALY) is a diversified global casino-entertainment company that owns and manages casinos, resorts, and online gaming platforms.
Why Are We Out on BALY?
- 2.5% annual revenue growth over the last two years was slower than its consumer discretionary peers
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Bally's is trading at $18.39 per share, or 2.3x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why BALY doesn’t pass our bar.
Heartland Express (HTLD)
Trailing 12-Month GAAP Operating Margin: -3.6%
Founded by the son of a trucker, Heartland Express (NASDAQ: HTLD) offers full-truckload deliveries across the United States and Mexico.
Why Should You Dump HTLD?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 14.2% annually over the last two years
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 12.7 percentage points
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $7.72 per share, Heartland Express trades at 8.7x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than HTLD.
Stocks We Like More
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