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. Keeping that in mind, here are three unprofitable companiesto steer clear of and a few better alternatives.
Rocket Lab (RKLB)
Trailing 12-Month GAAP Operating Margin: -41.4%
Becoming the first private company in the Southern Hemisphere to reach space, Rocket Lab (NASDAQ:RKLB) offers rockets designed for launching small satellites.
Why Are We Cautious About RKLB?
- Historical operating margin losses point to an inefficient cost structure
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
- Cash burn makes us question whether it can achieve sustainable long-term growth
At $80.81 per share, Rocket Lab trades at 57.2x forward price-to-sales. If you’re considering RKLB for your portfolio, see our FREE research report to learn more.
Ducommun (DCO)
Trailing 12-Month GAAP Operating Margin: -4.5%
California’s oldest company, Ducommun (NYSE:DCO) is a provider of engineering and manufacturing services for high-performance products primarily within the aerospace and defense industries.
Why Does DCO Give Us Pause?
- Average backlog growth of 4.8% over the past two years was mediocre and suggests fewer customers signed long-term contracts
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 12.2 percentage points
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its falling returns suggest its earlier profit pools are drying up
Ducommun’s stock price of $110.44 implies a valuation ratio of 27.1x forward P/E. Read our free research report to see why you should think twice about including DCO in your portfolio.
Hewlett Packard Enterprise (HPE)
Trailing 12-Month GAAP Operating Margin: -1.3%
Born from the 2015 split of the iconic Silicon Valley pioneer Hewlett-Packard, Hewlett Packard Enterprise (NYSE:HPE) provides edge-to-cloud technology solutions that help businesses capture, analyze, and act upon their data across hybrid IT environments.
Why Are We Hesitant About HPE?
- Sizable revenue base leads to growth challenges as its 4.9% annual revenue increases over the last five years fell short of other business services companies
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 5.5% annually while its revenue grew
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 10.5 percentage points
Hewlett Packard Enterprise is trading at $21.31 per share, or 8.9x forward P/E. To fully understand why you should be careful with HPE, check out our full research report (it’s free).
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