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 companiesto avoid and some better opportunities instead.
Zevia (ZVIA)
Trailing 12-Month GAAP Operating Margin: -4.6%
With a primary focus on soda but also a presence in energy drinks and teas, Zevia (NYSE: ZVIA) is a better-for-you beverage company.
Why Are We Hesitant About ZVIA?
- Products fail to spark excitement with consumers, as seen in its flat sales over the last three years
- Modest revenue base of $169.3 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Persistent operating margin losses suggest the business manages its expenses poorly
Zevia’s stock price of $1.46 implies a valuation ratio of 0.6x forward price-to-sales. If you’re considering ZVIA for your portfolio, see our FREE research report to learn more.
Ruger (RGR)
Trailing 12-Month GAAP Operating Margin: -3.2%
Founded in 1949, Ruger (NYSE: RGR) is an American manufacturer of firearms for the commercial sporting market.
Why Are We Bearish on RGR?
- Products and services have few die-hard fans as sales have declined by 2.6% annually over the last five years
- Poor free cash flow margin of 7.5% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Ruger is trading at $38.08 per share, or 21x forward P/E. To fully understand why you should be careful with RGR, check out our full research report (it’s free).
Invesco (IVZ)
Trailing 12-Month GAAP Operating Margin: -13.3%
With roots dating back to 1935 when it pioneered the first mutual fund with an objective of capital growth, Invesco (NYSE: IVZ) is a global asset management firm that offers investment solutions across equities, fixed income, alternatives, and multi-asset strategies.
Why Do We Avoid IVZ?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 1.1% annually
- High net-debt-to-EBITDA ratio of 6× could force the company to raise capital on unfavorable terms if market conditions deteriorate
At $29.33 per share, Invesco trades at 10.4x forward P/E. Read our free research report to see why you should think twice about including IVZ in your portfolio.
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