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. That said, here are three unprofitable companiesto steer clear of and a few better alternatives.
Commerce (CMRC)
Trailing 12-Month GAAP Operating Margin: -4.7%
As a founding member of the MACH Alliance advocating for modern tech standards, Commerce (NASDAQ:CMRC) provides a SaaS platform that enables businesses to build and manage online stores, connect with marketplaces, and integrate with point-of-sale systems.
Why Are We Out on CMRC?
- Average billings growth of 2.3% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 3.1% for the next 12 months implies demand will slow from its two-year trend
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Commerce’s stock price of $3.04 implies a valuation ratio of 0.7x forward price-to-sales. To fully understand why you should be careful with CMRC, check out our full research report (it’s free).
Sprout Social (SPT)
Trailing 12-Month GAAP Operating Margin: -9.5%
Born from the recognition that businesses needed a centralized way to handle their growing social media presence, Sprout Social (NASDAQ:SPT) provides a comprehensive software platform that helps businesses manage, analyze, and optimize their presence across various social media networks.
Why Are We Wary of SPT?
- Offerings struggled to generate meaningful interest as its average billings growth of 8.7% over the last year did not impress
- Estimated sales growth of 7.8% for the next 12 months implies demand will slow from its two-year trend
- Track record of operating margin losses stem from its decision to pursue growth instead of profits
At $6.04 per share, Sprout Social trades at 0.7x forward price-to-sales. Check out our free in-depth research report to learn more about why SPT doesn’t pass our bar.
IAC (IAC)
Trailing 12-Month GAAP Operating Margin: -4.1%
Originally known as InterActiveCorp and built through Barry Diller's strategic acquisitions since the 1990s, IAC (NASDAQ:IAC) operates a portfolio of category-leading digital businesses including Dotdash Meredith, Angi, and Care.com, focusing on digital publishing, home services, and caregiving platforms.
Why Do We Think IAC Will Underperform?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Sales over the last five years were less profitable as its earnings per share fell by 19.1% annually while its revenue was flat
- Negative returns on capital show that some of its growth strategies have backfired
IAC is trading at $45.19 per share, or 29x forward P/E. If you’re considering IAC for your portfolio, see our FREE research report to learn more.
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