Unprofitable companies face headwinds as they struggle to keep operating expenses under control. Some may be investing heavily, but the majority fail to convert spending into sustainable growth.
Finding the right unprofitable companies is difficult, which is why we started StockStory - to help you navigate the market. That said, here are three unprofitable companiesthat don’t make the cut and some better opportunities instead.
J. M. Smucker (SJM)
Trailing 12-Month GAAP Operating Margin: -8.3%
Best known for its fruit jams and spreads, J.M Smucker (NYSE:SJM) is a packaged foods company whose products span from peanut butter and coffee to pet food.
Why Do We Avoid SJM?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Efficiency has decreased over the last year as its operating margin fell by 22.2 percentage points
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam
At $99.44 per share, J. M. Smucker trades at 10.4x forward P/E. Read our free research report to see why you should think twice about including SJM in your portfolio.
ChargePoint (CHPT)
Trailing 12-Month GAAP Operating Margin: -52.5%
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 Give Us Pause?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 13.8% annually over the last two years
- Cash-burning history makes us doubt the long-term viability of its business model
- Negative earnings profile makes it challenging to secure favorable financing terms from lenders
ChargePoint is trading at $9.54 per share, or 0.5x forward price-to-sales. Check out our free in-depth research report to learn more about why CHPT doesn’t pass our bar.
3D Systems (DDD)
Trailing 12-Month GAAP Operating Margin: -26.5%
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 Sell DDD?
- Annual sales declines of 6.7% for the past five years show its products and services struggled to connect with the market during this cycle
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
3D Systems’s stock price of $1.82 implies a valuation ratio of 0.7x forward price-to-sales. If you’re considering DDD for your portfolio, see our FREE research report to learn more.
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