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.
Finding the right unprofitable companies is difficult, which is why we started StockStory - to help you navigate the market. That said, here are three unprofitable companiesthat don’t make the cut and some better opportunities instead.
Semrush (SEMR)
Trailing 12-Month GAAP Operating Margin: -5.1%
Born from the need to make sense of the complex digital marketing landscape, Semrush (NYSE:SEMR) is a software-as-a-service platform that helps companies improve their online visibility, analyze digital marketing efforts, and optimize content across search engines and social media.
Why Are We Cautious About SEMR?
- Below-average net revenue retention rate of 105% suggests it has some trouble expanding within existing accounts
- Operating margin dropped by 7.3 percentage points over the last year as the company focused on expansion rather than profitability
- Low free cash flow margin of 9.7% for the last year gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $12 per share, Semrush trades at 3.5x forward price-to-sales. Check out our free in-depth research report to learn more about why SEMR doesn’t pass our bar.
J. M. Smucker (SJM)
Trailing 12-Month GAAP Operating Margin: -7.7%
Best known for its fruit jams and spreads, J.M Smucker (NYSE:SJM) is a packaged foods company whose products span from peanut butter and coffee to pet food.
Why Is SJM Risky?
- Flat unit sales over the past two years suggest it might have to lower prices to stimulate growth
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 11.4 percentage points
- ROIC of 0.8% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
J. M. Smucker is trading at $98.61 per share, or 9.4x forward P/E. To fully understand why you should be careful with SJM, check out our full research report (it’s free).
Clarus (CLAR)
Trailing 12-Month GAAP Operating Margin: -23.8%
Initially a financial services business, Clarus (NASDAQ:CLAR) designs, manufactures, and distributes outdoor equipment and lifestyle products.
Why Do We Avoid CLAR?
- 2.3% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Clarus’s stock price of $2.72 implies a valuation ratio of 14.1x forward P/E. If you’re considering CLAR for your portfolio, see our FREE research report to learn more.
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