3 Unprofitable Stocks with Questionable Fundamentals

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. That said, here are three unprofitable companiesto steer clear of and a few better alternatives.

Procore Technologies (PCOR)

Trailing 12-Month GAAP Operating Margin: -7.6%

With a mission to build software for the people that build the world, Procore Technologies (NYSE:PCOR) provides cloud-based software that enables owners, contractors, and other stakeholders to collaborate and manage construction projects from any device.

Why Are We Hesitant About PCOR?

1. Underwhelming ARR growth of 14.9% over the last year suggests the company faced challenges in acquiring and retaining long-term customers
2. Estimated sales growth of 13% for the next 12 months implies demand will slow from its two-year trend
3. Persistent operating margin losses suggest the business manages its expenses poorly

At $39.05 per share, Procore Technologies trades at 3.9x forward price-to-sales. To fully understand why you should be careful with PCOR, check out our full research report (it’s free).

Grocery Outlet (GO)

Trailing 12-Month GAAP Operating Margin: -8%

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 Do We Think GO Will Underperform?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Efficiency has decreased over the last year as its operating margin fell by 9.2 percentage points
3. High net-debt-to-EBITDA ratio of 7× could force the company to raise capital on unfavorable terms if market conditions deteriorate

Grocery Outlet is trading at $9.39 per share, or 18.1x forward P/E. Check out our free in-depth research report to learn more about why GO doesn’t pass our bar.

Neogen (NEOG)

Trailing 12-Month GAAP Operating Margin: -73.1%

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 Should You Dump NEOG?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 3.2% annually over the last two years
2. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
3. Unprofitable operations could lead to additional rounds of dilutive equity financing if the credit window closes

Neogen’s stock price of $9.18 implies a valuation ratio of 33.1x forward P/E. If you’re considering NEOG for your portfolio, see our FREE research report to learn more.

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