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 is one unprofitable company with the potential to become an industry leader and two that could struggle to survive.
Two Stocks to Sell:
Sonos (SONO)
Trailing 12-Month GAAP Operating Margin: -6.1%
A pioneer in connected home audio systems, Sonos (NASDAQ: SONO) offers a range of premium wireless speakers and sound systems.
Why Do We Think SONO Will Underperform?
- Products and services have few die-hard fans as sales have declined by 8% annually over the last two years
- Persistent operating margin losses suggest the business manages its expenses poorly
- Negative returns on capital show that some of its growth strategies have backfired
At $17.60 per share, Sonos trades at 23.8x forward P/E. Read our free research report to see why you should think twice about including SONO in your portfolio.
Mercury Systems (MRCY)
Trailing 12-Month GAAP Operating Margin: -2.2%
Founded in 1981, Mercury Systems (NASDAQ: MRCY) specializes in providing processing subsystems and components for primarily defense applications.
Why Do We Avoid MRCY?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 22.5% annually
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Mercury Systems is trading at $77.42 per share, or 79.6x forward P/E. If you’re considering MRCY for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Planet Labs (PL)
Trailing 12-Month GAAP Operating Margin: -31.5%
Pioneering the concept of "agile aerospace" with hundreds of small but powerful satellites, Planet Labs (NYSE: PL) operates the world's largest fleet of Earth observation satellites, capturing daily images of our planet to provide insights on deforestation, agriculture, and climate change.
Why Are We Backing PL?
- Annual revenue growth of 22.3% over the last five years was superb and indicates its market share increased during this cycle
- Free cash flow profile has moved into positive territory over the last five years, indicating the company has achieved financial self-sustainability
- Historical investments are beginning to pay off as its returns on capital are growing
Planet Labs’s stock price of $13.05 implies a valuation ratio of 12.7x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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