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.
Optimum Communications (OPTU)
Trailing 12-Month GAAP Operating Margin: -35.3%
Based in Long Island City, Optimum Communications (NYSE: OPTU) is a telecommunications company offering cable, internet, telephone, and television services across the United States.
Why Do We Steer Clear of OPTU?
- Sluggish trends in its broadband subscribers suggest customers aren’t adopting its solutions as quickly as the company hoped
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- 8× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $0.98 per share, Optimum Communications trades at 7.9x forward EV-to-EBITDA. To fully understand why you should be careful with OPTU, check out our full research report (it’s free).
Heartland Express (HTLD)
Trailing 12-Month GAAP Operating Margin: -2.3%
Founded by the son of a trucker, Heartland Express (NASDAQ: HTLD) offers full-truckload deliveries across the United States and Mexico.
Why Are We Bearish on HTLD?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 18.8% annually over the last two years
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 14.5 percentage points
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Heartland Express’s stock price of $11.67 implies a valuation ratio of 52.8x forward P/E. Check out our free in-depth research report to learn more about why HTLD doesn’t pass our bar.
NN (NNBR)
Trailing 12-Month GAAP Operating Margin: -5.8%
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 Are We Out on NNBR?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.1% annually over the last five years
- Low free cash flow margin of -0.7% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
NN is trading at $4.22 per share, or 47.5x forward P/E. Read our free research report to see why you should think twice about including NNBR in your portfolio.
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