Unprofitable companies face headwinds as they struggle to keep operating expenses under control. Some may be investing heavily, but the majority fail to convert spending into sustainable growth.
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 investing heavily to secure market share and two that may never reach the Promised Land.
Two Stocks to Sell:
Driven Brands (DRVN)
Trailing 12-Month GAAP Operating Margin: -8.1%
With approximately 5,000 locations across 49 U.S. states and 13 other countries, Driven Brands (NASDAQ:DRVN) operates a network of automotive service centers offering maintenance, car washes, paint, collision repair, and glass services across North America.
Why Is DRVN Not Exciting?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Driven Brands is trading at $16.55 per share, or 11.9x forward P/E. If you’re considering DRVN for your portfolio, see our FREE research report to learn more.
Lucid (LCID)
Trailing 12-Month GAAP Operating Margin: -323%
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 155% gross margin means it loses money on every sale and must pivot or scale quickly to survive
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $2.18 per share, Lucid trades at 3.6x forward price-to-sales. Check out our free in-depth research report to learn more about why LCID doesn’t pass our bar.
One Stock to Watch:
Marvell Technology (MRVL)
Trailing 12-Month GAAP Operating Margin: -4.6%
Moving away from a low margin storage device management chips in one of the biggest semiconductor business model pivots of the past decade, Marvell Technology (NASDAQ: MRVL) is a fabless designer of special purpose data processing and networking chips used by data centers, communications carriers, enterprises, and autos.
Why Does MRVL Stand Out?
- Annual revenue growth of 18.9% over the last five years was superb and indicates its market share increased during this cycle
- Demand for the next 12 months is expected to accelerate above its two-year trend as Wall Street forecasts robust revenue growth of 31.9%
- Performance over the past five years shows its incremental sales were more profitable, as its annual earnings per share growth of 23.5% outpaced its revenue gains
Marvell Technology’s stock price of $77.49 implies a valuation ratio of 26x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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