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 two unprofitable companies investing heavily to secure market share and one that may never reach the Promised Land.
One Stock to Sell:
Health Catalyst (HCAT)
Trailing 12-Month GAAP Operating Margin: -28%
Built on its "Health Catalyst Flywheel" methodology that emphasizes measurable outcomes, Health Catalyst (NASDAQ: HCAT) provides data and analytics technology and services that help healthcare organizations manage their data and drive measurable clinical, financial, and operational improvements.
Why Do We Steer Clear of HCAT?
- Muted 5.4% annual revenue growth over the last two years shows its demand lagged behind its software peers
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Health Catalyst is trading at $3.23 per share, or 0.7x forward price-to-sales. Check out our free in-depth research report to learn more about why HCAT doesn’t pass our bar.
Two Stocks to Watch:
Arlo Technologies (ARLO)
Trailing 12-Month GAAP Operating Margin: -1.9%
Originally spun off from networking equipment maker Netgear in 2018, Arlo Technologies (NYSE: ARLO) provides cloud-based smart security devices and subscription services that help consumers and businesses monitor and protect their homes, properties, and loved ones.
Why Is ARLO on Our Radar?
- Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 434% annually, topping its revenue gains
- Free cash flow margin grew by 17.4 percentage points over the last five years, giving the company more chips to play with
At $19.40 per share, Arlo Technologies trades at 29x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
StepStone Group (STEP)
Trailing 12-Month GAAP Operating Margin: -37.8%
Operating as both an advisor and asset manager with over $100 billion in assets under management, StepStone Group (NASDAQ: STEP) is an investment firm that provides clients with access to private market investments across private equity, real estate, private debt, and infrastructure.
Why Do We Love STEP?
- Annual revenue growth of 27.7% over the past two years was outstanding, reflecting market share gains this cycle
- Additional sales over the last two years increased its profitability as the 33.8% annual growth in its earnings per share outpaced its revenue
- ROE punches in at 24.6%, illustrating management’s expertise in identifying profitable investments
StepStone Group’s stock price of $61.06 implies a valuation ratio of 30x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free for active Edge members.
Stocks We Like Even More
Fresh US-China trade tensions just tanked stocks—but strong bank earnings are fueling a sharp rebound. Don’t miss the bounce.
Don’t let fear keep you from great opportunities and take a look at Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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