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.
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 is one unprofitable company that could turn today’s losses into long-term gains and two that could struggle to survive.
Two Stocks to Sell:
Asana (ASAN)
Trailing 12-Month GAAP Operating Margin: -29.3%
Born from the founders' frustration with the inefficiencies of email-based collaboration at Facebook, Asana (NYSE: ASAN) provides a work management platform that helps organizations track projects, set goals, and manage workflows in a centralized digital workspace.
Why Do We Think ASAN Will Underperform?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 9.3% underwhelmed
- Platform has low switching costs as its net revenue retention rate of 95.7% demonstrates high turnover
- Drawn-out sales process reflects its software’s integration hurdles with enterprise clients, restraining customer growth potential
At $13.52 per share, Asana trades at 3.7x forward price-to-sales. If you’re considering ASAN for your portfolio, see our FREE research report to learn more.
Magnachip (MX)
Trailing 12-Month GAAP Operating Margin: -16.7%
With its technology found in common consumer electronics such as TVs and smartphones, Magnachip Semiconductor (NYSE: MX) is a provider of analog and mixed-signal semiconductors.
Why Do We Steer Clear of MX?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 16.2% annually over the last five years
- Earnings per share have dipped by 16.8% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Long-term business health is up for debate as its cash burn has increased over the last five years
Magnachip’s stock price of $2.85 implies a valuation ratio of 0.6x forward price-to-sales. To fully understand why you should be careful with MX, check out our full research report (it’s free for active Edge members).
One Stock to Watch:
Roku (ROKU)
Trailing 12-Month GAAP Operating Margin: -2.4%
With a name meaning six in Japanese because it was the founder's sixth company that he started, Roku (NASDAQ: ROKU) makes hardware players that offer access to various online streaming TV services.
Why Do We Watch ROKU?
- Total Hours Streamed have grown by 18.7% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 51.2% over the last three years outstripped its revenue performance
- Free cash flow margin increased by 14 percentage points over the last few years, giving the company more capital to invest or return to shareholders
Roku is trading at $110.38 per share, or 29.6x forward EV/EBITDA. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
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