3 Unprofitable Stocks That Concern Us

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.

Unprofitable companies face an uphill battle, but not all are created equal. Luckily for you, StockStory is here to separate the promising ones from the weak. Keeping that in mind, here are three unprofitable companiesto avoid and some better opportunities instead.

Heartland Express (HTLD)

Trailing 12-Month GAAP Operating Margin: -6%

Founded by the son of a trucker, Heartland Express (NASDAQ:HTLD) offers full-truckload deliveries across the United States and Mexico.

Why Are We Out on HTLD?

1. Annual sales declines of 18.5% for the past two years show its products and services struggled to connect with the market during this cycle
2. Earnings per share fell by 19.4% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Heartland Express’s stock price of $16.10 implies a valuation ratio of 171.7x forward P/E. To fully understand why you should be careful with HTLD, check out our full research report (it’s free).

Centene (CNC)

Trailing 12-Month GAAP Operating Margin: -3.7%

Serving nearly 1 in 15 Americans through its government healthcare programs, Centene (NYSE:CNC) is a healthcare company that manages government-sponsored health insurance programs like Medicaid and Medicare for low-income and complex-needs populations.

Why Do We Think Twice About CNC?

1. Weak customer trends over the past two years suggest it may need to improve its products, pricing, or go-to-market strategy
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 15.2% annually
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

Centene is trading at $64.89 per share, or 17.6x forward P/E. Check out our free in-depth research report to learn more about why CNC doesn’t pass our bar.

PacBio (PACB)

Trailing 12-Month GAAP Operating Margin: -83.3%

Pioneering what scientists call "HiFi long-read sequencing," recognized as Nature Methods' method of the year for 2022, Pacific Biosciences (NASDAQ:PACB) develops advanced DNA sequencing systems that enable scientists and researchers to analyze genomes with unprecedented accuracy and completeness.

Why Does PACB Give Us Pause?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 10.6% annually over the last two years
2. Cash-burning history makes us doubt the long-term viability of its business model
3. Negative earnings profile makes it challenging to secure favorable financing terms from lenders

At $1.32 per share, PacBio trades at 2.4x forward price-to-sales. Dive into our free research report to see why there are better opportunities than PACB.

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