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.
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. Keeping that in mind, here are three unprofitable companiesto avoid and some better opportunities instead.
Hasbro (HAS)
Trailing 12-Month GAAP Operating Margin: -5.2%
Credited with the creation of toys such as Mr. Potato Head and the Rubik’s Cube, Hasbro (NASDAQ: HAS) is a global entertainment company offering a diverse range of toys, games, and multimedia experiences for children and families.
Why Do We Pass on HAS?
- Annual revenue declines of 3.4% over the last five years indicate problems with its market positioning
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 3.8% annually
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Hasbro’s stock price of $87.33 implies a valuation ratio of 17x forward P/E. If you’re considering HAS for your portfolio, see our FREE research report to learn more.
Topgolf Callaway (MODG)
Trailing 12-Month GAAP Operating Margin: -31%
Formed between the merger of Callaway and Topgolf, Topgolf Callaway (NYSE: MODG) sells golf equipment and operates technology-driven golf entertainment venues.
Why Do We Think MODG Will Underperform?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Topgolf Callaway is trading at $13.12 per share, or 6.2x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including MODG in your portfolio.
Moderna (MRNA)
Trailing 12-Month GAAP Operating Margin: -155%
Rising to global prominence during the COVID-19 pandemic with one of the first effective vaccines, Moderna (NASDAQ: MRNA) develops messenger RNA (mRNA) medicines that direct the body's cells to produce proteins with therapeutic or preventive benefits for various diseases.
Why Should You Sell MRNA?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 50.5% annually over the last two years
- 215.1 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $35.93 per share, Moderna trades at 8x forward price-to-sales. Check out our free in-depth research report to learn more about why MRNA doesn’t pass our bar.
Stocks We Like More
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