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. Keeping that in mind, here is one unprofitable company with the potential to become an industry leader and two that may never reach the Promised Land.
Two Stocks to Sell:
Centene (CNC)
Trailing 12-Month GAAP Operating Margin: -3.1%
Serving nearly 1 in 15 Americans through its government healthcare programs, Centene (NYSE: CNC) is a healthcare company that manages government-sponsored health insurance programs like Medicaid and Medicare for low-income and complex-needs populations.
Why Are We Hesitant About CNC?
- Underwhelming customer growth over the past two years shows the company faced challenges in winning new contracts
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 5.1% annually
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $44.60 per share, Centene trades at 19.2x forward P/E. Check out our free in-depth research report to learn more about why CNC doesn’t pass our bar.
International Flavors & Fragrances (IFF)
Trailing 12-Month GAAP Operating Margin: -3.2%
Responsible for the scents in your favorite perfumes and the flavors in your daily snacks, International Flavors & Fragrances (NYSE: IFF) creates and manufactures ingredients for food, beverages, personal care products, and pharmaceuticals used in countless consumer goods.
Why Do We Think IFF Will Underperform?
- Annual revenue declines of 4.3% over the last three years indicate problems with its market positioning
- Historical operating margin losses point to an inefficient cost structure
- Negative returns on capital show management lost money while trying to expand the business, and its shrinking returns suggest its past profit sources are losing steam
International Flavors & Fragrances’s stock price of $73.17 implies a valuation ratio of 16.9x forward P/E. Dive into our free research report to see why there are better opportunities than IFF.
One Stock to Watch:
IonQ (IONQ)
Trailing 12-Month GAAP Operating Margin: -604%
Founded by quantum physics pioneers from the University of Maryland and Duke University in 2015, IonQ (NYSE: IONQ) develops quantum computers that process information using trapped ions to solve complex computational problems beyond the capabilities of traditional computers.
Why Are We Positive On IONQ?
- Impressive 101% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Demand for the next 12 months is expected to accelerate above its two-year trend as Wall Street forecasts robust revenue growth of 115%
- Adjusted operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
IonQ is trading at $44.46 per share, or 81x forward price-to-sales. Is now the right time to buy? See for yourself in our full research report, it’s free.
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