These 3 Well-Known Companies Are Losing Money
A famous brand, tens of billions of dollars in revenue, and a host of analysts recommending the stock. And yet some of the world’s best-known companies aren’t making money today. One is losing money directly in its operations, another because of an accounting revaluation, and a third is burning through cash faster than it can generate it. Where does accounting noise end and a real problem begin?
Key points
Three globally renowned companies with tens of billions of dollars in revenue share one problem. Each is losing money, but in a completely different way. And that difference could determine the future of their stocks.
One of the world’s largest industrial companies has a record backlog worth $715 billion. Yet its core business is still losing money, and its reported net income paints a misleading picture of the actual situation.
Record revenue and the fastest growth in more than 15 years came alongside an $11 billion loss. How can a company report its worst result ever just as its business is improving significantly?
One of the companies analyzed earned nearly $11 billion over the past year, yet more than $11 billion in free cash disappeared from its accounts. Can a profitable company actually be under financial pressure?
Analysts see upside potential of 35% to 86% for all three stocks. But current valuations show that investors are paying for three entirely different scenarios for a future turnaround.
A loss is more than just a number. When investors see negative net income or a missing P/E in a screener, they tend to write a company off straight away. Conversely, a positive P/E automatically creates the impression that everything is fine. But with large, well-known companies, this shortcut fails more often than you might think.
A one-off gain from selling a division can make an operationally loss-making company look profitable on paper. A non-cash revaluation of a liability can turn a quarter with the best revenue in more than a decade into a record loss. And a company with high net income can still be burning billions of dollars in cash.
That is why it is essential for investors to distinguish between three basic types of “losing money”:
Operating loss: the core business does not cover its own costs, and the company loses money on what it makes or sells.
Accounting loss: non-cash items drag down net income, while operations themselves are profitable.
Cash loss: the company is profitable, but investments exceed operating cash flow, leaving free cash flow negative.
In this analysis, we examine three globally renowned companies, each representing a different type of loss. The topic is timely, as two will report their third-quarter results later this week and the third at the end of November.