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. That said, here are three unprofitable companiesthat don’t make the cut and some better opportunities instead.
MongoDB (MDB)
Trailing 12-Month GAAP Operating Margin: -8.1%
Started in 2007 by the team behind Google’s ad platform, DoubleClick, MongoDB offers database-as-a-service that helps companies store large volumes of semi-structured data.
Why Are We Hesitant About MDB?
- Operating losses show it sacrificed profitability while scaling the business
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 7.6% for the last year
MongoDB is trading at $208.76 per share, or 7.8x forward price-to-sales. Dive into our free research report to see why there are better opportunities than MDB.
Fiverr (FVRR)
Trailing 12-Month GAAP Operating Margin: -3.9%
Based in Tel Aviv, Fiverr (NYSE: FVRR) operates a fixed price global freelance marketplace for digital services.
Why Are We Cautious About FVRR?
- Struggled with new customer acquisition as its active buyers averaged 8.1% declines
- Estimated sales growth of 7% for the next 12 months implies demand will slow from its three-year trend
- Highly competitive market means it’s on the never-ending treadmill of sales and marketing spend
Fiverr’s stock price of $21.91 implies a valuation ratio of 9.3x forward EV/EBITDA. If you’re considering FVRR for your portfolio, see our FREE research report to learn more.
Purple (PRPL)
Trailing 12-Month GAAP Operating Margin: -18.2%
Founded by two brothers, Purple (NASDAQ: PRPL) creates sleep and home comfort products such as mattresses, pillows, and bedding accessories.
Why Are We Out on PRPL?
- Sales tumbled by 2.9% annually over the last five years, showing consumer trends are working against its favor
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $0.81 per share, Purple trades at 9.3x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including PRPL in your portfolio.
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