Running at a loss can be a red flag. Many of these businesses face mounting challenges as competition increases and funding becomes harder to secure.
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 avoid and some better opportunities instead.
Yext (YEXT)
Trailing 12-Month GAAP Operating Margin: -6%
Founded in 2006 by Howard Lerman, Yext (NYSE: YEXT) offers software as a service that helps their clients manage and monitor their online listings and customer reviews across all relevant databases, from Google Maps to Alexa or Siri.
Why Are We Hesitant About YEXT?
- ARR growth averaged a weak 8.8% over the last year, suggesting that competition is pulling some attention away from its software
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 4.7%
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
Yext is trading at $8.18 per share, or 2.4x forward price-to-sales. Dive into our free research report to see why there are better opportunities than YEXT.
Foot Locker (FL)
Trailing 12-Month GAAP Operating Margin: -2.4%
Known for store associates whose uniforms resemble those of referees, Foot Locker (NYSE: FL) is a specialty retailer that sells athletic footwear, clothing, and accessories.
Why Do We Steer Clear of FL?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Poor expense management has led to an operating margin of -0.5% that is below the industry average
- 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Foot Locker’s stock price of $25.12 implies a valuation ratio of 19.3x forward P/E. To fully understand why you should be careful with FL, check out our full research report (it’s free).
EchoStar (SATS)
Trailing 12-Month GAAP Operating Margin: -2.4%
Following its 2023 acquisition of DISH Network, EchoStar (NASDAQ: SATS) provides satellite communications, pay-TV services, wireless networks, and broadband solutions across consumer and enterprise markets.
Why Should You Sell SATS?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.3% annually over the last two years
- Free cash flow margin dropped by 6.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $29 per share, EchoStar trades at 5.2x forward EV-to-EBITDA. If you’re considering SATS for your portfolio, see our FREE research report to learn more.
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