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 avoid and some better opportunities instead.
Icahn Enterprises (IEP)
Trailing 12-Month GAAP Operating Margin: -2.1%
Founded in 1987, Icahn Enterprises (NASDAQ: IEP) is a diversified holding company primarily engaged in investment and asset management across various sectors.
Why Is IEP Not Exciting?
- Annual sales declines of 9.6% for the past two years show its products and services struggled to connect with the market during this cycle
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- High net-debt-to-EBITDA ratio of 8× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Icahn Enterprises is trading at $7.96 per share, or 0.5x forward price-to-sales. To fully understand why you should be careful with IEP, check out our full research report (it’s free).
NN (NNBR)
Trailing 12-Month GAAP Operating Margin: -4.8%
Formerly known as Nuturn, NN (NASDAQ: NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.
Why Do We Steer Clear of NNBR?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.4% annually over the last two years
- Issuance of new shares over the last five years caused its earnings per share to fall by 18.8% annually
- Cash burn makes us question whether it can achieve sustainable long-term growth
NN’s stock price of $1.67 implies a valuation ratio of 26x forward P/E. Dive into our free research report to see why there are better opportunities than NNBR.
EVgo (EVGO)
Trailing 12-Month GAAP Operating Margin: -40%
Created through a settlement between NRG Energy and the California Public Utilities Commission, EVgo (NASDAQ: EVGO) is a provider of electric vehicle charging solutions, operating fast charging stations across the United States.
Why Are We Wary of EVGO?
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $2.82 per share, EVgo trades at 10.4x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including EVGO in your portfolio.
Stocks We Like More
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