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 companiesthat don’t make the cut and some better opportunities instead.

Commerce (CMRC)

Trailing 12-Month GAAP Operating Margin: -3.1%

As a founding member of the MACH Alliance advocating for modern tech standards, Commerce (NASDAQ: CMRC) provides a SaaS platform that enables businesses to build and manage online stores, connect with marketplaces, and integrate with point-of-sale systems.

Why Do We Pass on CMRC?

1. Products, pricing, or go-to-market strategy may need some adjustments as its 2.4% average billings growth over the last year was weak
2. Estimated sales growth of 4.1% for the next 12 months implies demand will slow from its two-year trend
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 8.3% for the last year

Commerce is trading at $2.99 per share, or 0.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than CMRC.

Sweetgreen (SG)

Trailing 12-Month GAAP Operating Margin: -17.9%

Founded in 2007 by three Georgetown University alum, Sweetgreen (NYSE: SG) is a casual quick service chain known for its healthy salads and bowls.

Why Is SG Risky?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
2. 10.8 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Sweetgreen’s stock price of $6.05 implies a valuation ratio of 1x forward price-to-sales. To fully understand why you should be careful with SG, check out our full research report (it’s free).

Neogen (NEOG)

Trailing 12-Month GAAP Operating Margin: -71.3%

Founded in 1981 and operating at the intersection of food safety and animal health, Neogen (NASDAQ: NEOG) develops and manufactures diagnostic tests and related products to detect dangerous substances in food and pharmaceuticals for animal health.

Why Do We Think NEOG Will Underperform?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.1% annually over the last two years
2. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
3. EBITDA losses may force it to accept punitive lending terms or high-cost debt

At $10.27 per share, Neogen trades at 36.8x forward P/E. If you’re considering NEOG for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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