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. Keeping that in mind, here is one unprofitable company investing heavily to secure market share and two best left off your radar.
Two Stocks to Sell:
E.W. Scripps (SSP)
Trailing 12-Month GAAP Operating Margin: -50.3%
Founded as a chain of daily newspapers, E.W. Scripps (NASDAQ:SSP) is a diversified media enterprise operating a range of local television stations, national networks, and digital media platforms.
Why Should You Sell SSP?
- Products and services fail to spark excitement with consumers, as seen in its flat sales over the last five years
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- High net-debt-to-EBITDA ratio of 9× increases the risk of forced asset sales or dilutive financing if operational performance weakens
E.W. Scripps’s stock price of $3.12 implies a valuation ratio of 313.5x forward P/E. Dive into our free research report to see why there are better opportunities than SSP.
Alight (ALIT)
Trailing 12-Month GAAP Operating Margin: -95.7%
Born from a corporate spinoff in 2017 to focus on employee experience technology, Alight (NYSE:ALIT) provides human capital management solutions that help companies administer employee benefits, payroll, and workforce management systems.
Why Do We Pass on ALIT?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 4.1% annually over the last five years
- Earnings per share have dipped by 7.3% annually over the past four years, which is concerning because stock prices follow EPS over the long term
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $12.05 per share, Alight trades at 2.6x forward P/E. To fully understand why you should be careful with ALIT, check out our full research report (it’s free).
One Stock to Watch:
Gevo (GEVO)
Trailing 12-Month GAAP Operating Margin: -103%
Operating one of the largest dairy-based renewable natural gas facilities in the United States, Gevo (NASDAQ:GEVO) produces sustainable aviation fuel and other renewable hydrocarbon fuels from plant-based feedstocks like corn.
Why Are We Fans of GEVO?
- Impressive 19.6% annual revenue growth over the last ten years indicates it’s winning market share this cycle
Gevo is trading at $1.60 per share, or 7.5x forward EV-to-EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.
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