Key insights
- The article highlights concerns about Grocery Outlet (GO) due to poor same-store sales, declining efficiency, and high debt, suggesting potential equity dilution. It also raises red flags about Baxter International (BAX) due to disappointing revenue growth and a low return on capital. These company-specific issues could contribute to negative sentiment in the retail and healthcare sectors, but the overall market impact is limited.
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.
Finding the right unprofitable companies is difficult, which is why we started StockStory - to help you navigate the market. That said, here is one unprofitable company investing heavily to secure market share and two best left off your radar.
Trailing 12-Month GAAP Operating Margin: -4.7%
Due to its differentiated procurement and buying approach, Grocery Outlet (NASDAQ:GO) is a discount grocery store chain that offers substantial discounts on name-brand products.
Why Are We Out on GO?
Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
Efficiency has decreased over the last year as its operating margin fell by 6.5 percentage points
7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Grocery Outlet’s stock price of $6.09 implies a valuation ratio of 12.7x forward P/E. To fully understand why you should be careful with GO, check out our full research report (it’s free).
Trailing 12-Month GAAP Operating Margin: -2.7%
With a history dating back to 1931 and products used in over 100 countries, Baxter International (NYSE:BAX) provides essential healthcare products including dialysis therapies, IV solutions, infusion systems, surgical products, and patient monitoring technologies to hospitals and clinics worldwide.
Why Should You Dump BAX?
Constant currency revenue growth has disappointed over the past two years and shows demand was soft
Sales over the last five years were less profitable as its earnings per share fell by 6% annually while its revenue was flat
Underwhelming -0.9% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up
At $17.12 per share, Baxter trades at 9.1x forward P/E. Dive into our free research report to see why there are better opportunities than BAX.
Trailing 12-Month GAAP Operating Margin: -17.3%
Named after the amphibian that continuously evolves from egg to tadpole to adult, JFrog (NASDAQ:FROG) provides a platform that helps organizations securely create, store, manage, and distribute software packages across any system.
Why Is FROG a Top Pick?
Customers view its software as mission-critical to their operations as its ARR has averaged 23.6% growth over the last year
Software platform has product-market fit given the rapid recovery of its customer acquisition costs
Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
JFrog is trading at $43.17 per share, or 7.8x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free.
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