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 are three unprofitable companiesto steer clear of and a few better alternatives.
Varonis Systems (VRNS)
Trailing 12-Month GAAP Operating Margin: -22%
Beginning with protecting Windows file shares in 2005 and evolving into a comprehensive security platform, Varonis Systems (NASDAQ: VRNS) provides data security software that helps organizations protect sensitive information, detect threats, and comply with privacy regulations.
Why Do We Steer Clear of VRNS?
- Offerings struggled to generate meaningful interest as its average billings growth of 13% over the last year did not impress
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Efficiency has decreased over the last year as its operating margin fell by 1.6 percentage points
Varonis Systems’s stock price of $40.84 implies a valuation ratio of 5.8x forward price-to-sales. Read our free research report to see why you should think twice about including VRNS in your portfolio.
Fluence Energy (FLNC)
Trailing 12-Month GAAP Operating Margin: -4.2%
Pioneering the use of lithium-ion batteries for grid storage, Fluence (NASDAQ: FLNC) helps store renewable energy sources with battery systems.
Why Does FLNC Fall Short?
- Historically negative EPS raises concerns for risk-averse investors and makes its earnings potential harder to gauge
- Cash-burning history makes us doubt the long-term viability of its business model
- Negative EBITDA restricts its access to capital and increases the probability of shareholder dilution if things turn unexpectedly
Fluence Energy is trading at $11.25 per share, or 451x forward P/E. To fully understand why you should be careful with FLNC, check out our full research report (it’s free).
Plug Power (PLUG)
Powering forklifts for Walmart’s distribution centers, Plug Power (NASDAQ: PLUG) provides hydrogen fuel cells used to power electric motors.
Why Do We Think Twice About PLUG?
- Annual revenue growth of 4.3% over the last two years was below our standards for the industrials sector
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
At $2.27 per share, Plug Power trades at 3.4x forward price-to-sales. Dive into our free research report to see why there are better opportunities than PLUG.
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