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.
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 is one unprofitable company with the potential to become an industry leader and two that may never reach the Promised Land.
Two Stocks to Sell:
Elastic (ESTC)
Trailing 12-Month GAAP Operating Margin: -2.1%
Built on the powerful open-source Elasticsearch technology that powers search functionality for thousands of websites worldwide, Elastic (NYSE:ESTC) provides a search and AI platform that helps organizations find insights from their data, monitor applications, and protect against security threats.
Why Are We Cautious About ESTC?
- Average billings growth of 13.9% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 13.7% for the next 12 months implies demand will slow from its two-year trend
- Operating margin expanded by 5.9 percentage points over the last year as it scaled and became more efficient
Elastic’s stock price of $65.72 implies a valuation ratio of 3.8x forward price-to-sales. Check out our free in-depth research report to learn more about why ESTC doesn’t pass our bar.
Lucid (LCID)
Trailing 12-Month GAAP Operating Margin: -297%
Founded by a former Tesla Vice President, Lucid Group (NASDAQ:LCID) designs, manufactures, and sells luxury electric vehicles with long-range capabilities.
Why Are We Hesitant About LCID?
- Negative 148% gross margin means it loses money on every sale and must pivot or scale quickly to survive
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $10.30 per share, Lucid trades at 1.5x forward price-to-sales. Read our free research report to see why you should think twice about including LCID in your portfolio.
One Stock to Buy:
SentinelOne (S)
Trailing 12-Month GAAP Operating Margin: -33.7%
Built on the principle of "fighting machine with machine," SentinelOne (NYSE:S) provides an AI-powered cybersecurity platform that autonomously prevents, detects, and responds to threats across endpoints, cloud workloads, and identity systems.
Why Do We Love S?
- Customers view its software as mission-critical to their operations as its ARR has averaged 24.6% growth over the last year
- Forecasted revenue growth of 20.1% for the next 12 months indicates its momentum over the last two years is sustainable
- Free cash flow margin is on track to jump by 3.4 percentage points next year, meaning the company will have more resources to pursue growth initiatives, repurchase shares, or pay dividends
SentinelOne is trading at $14.45 per share, or 4.1x 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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