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.
A lack of profits can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. That said, here are three unprofitable companies to steer clear of and a few better alternatives.
Krispy Kreme (DNUT)
Trailing 12-Month GAAP Operating Margin: -2%
Famous for its Original Glazed doughnuts and parent company of Insomnia Cookies, Krispy Kreme (NASDAQ: DNUT) is one of the most beloved and well-known fast-food chains in the world.
Why Do We Steer Clear of DNUT?
- Annual revenue growth of 6.2% over the last seven years was below our standards for the restaurant sector
- Cash-burning history makes us doubt the long-term viability of its business model
- High net-debt-to-EBITDA ratio of 8× could force the company to raise capital on unfavorable terms if market conditions deteriorate
At $2.89 per share, Krispy Kreme trades at 42.5x forward P/E. To fully understand why you should be careful with DNUT, check out our full research report (it’s free).
Array (ARRY)
Trailing 12-Month GAAP Operating Margin: -5.1%
Going public in October 2020, Array (NASDAQ: ARRY) is a global manufacturer of ground-mounting tracking systems for utility and distributed generation solar energy projects.
Why Should You Sell ARRY?
- Muted 3.7% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Earnings per share fell by 3.1% annually over the last five years while its revenue grew, partly because it diluted shareholders
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Array is trading at $3.39 per share, or 4.3x forward P/E. Dive into our free research report to see why there are better opportunities than ARRY.
QuidelOrtho (QDEL)
Trailing 12-Month GAAP Operating Margin: -30.8%
Born from the 2022 merger of Quidel and Ortho Clinical Diagnostics, QuidelOrtho (NASDAQ: QDEL) develops and manufactures diagnostic testing solutions for healthcare providers, from rapid point-of-care tests to complex laboratory instruments and systems.
Why Do We Think QDEL Will Underperform?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
QuidelOrtho’s stock price of $13.78 implies a valuation ratio of 7x forward EV-to-EBITDA. If you’re considering QDEL for your portfolio, see our FREE research report to learn more.
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