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.

A lack of profits can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. That said, here are three unprofitable companies to steer clear of and a few better alternatives.

Clarus (CLAR)

Trailing 12-Month GAAP Operating Margin: -17.2%

Initially a financial services business, Clarus (NASDAQ: CLAR) designs, manufactures, and distributes outdoor equipment and lifestyle products.

Why Is CLAR Risky?

1. Sales tumbled by 2.6% annually over the last five years, showing consumer trends are working against it
2. Negative free cash flow raises questions about the return timeline for its investments
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Clarus is trading at $3.90 per share, or 34.8x forward P/E. To fully understand why you should be careful with CLAR, check out our full research report (it’s free).

Gilead Sciences (GILD)

Trailing 12-Month GAAP Operating Margin: -8.2%

From its groundbreaking work in developing the first single-tablet regimens for HIV treatment, Gilead Sciences (NASDAQ: GILD) develops and markets innovative medicines for life-threatening diseases including HIV, viral hepatitis, COVID-19, and cancer.

Why Are We Cautious About GILD?

1. The company has faced growth challenges as its 2.7% annual revenue increases over the last five years fell short of other healthcare companies
2. Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 34.2 percentage points
3. Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term

At $146.00 per share, Gilead Sciences trades at 16x forward P/E. Read our free research report to see why you should think twice about including GILD in your portfolio.

Concentrix (CNXC)

Trailing 12-Month GAAP Operating Margin: -10.2%

With a team of approximately 450,000 employees across 75 countries, Concentrix (NASDAQ: CNXC) designs and delivers customer experience solutions that help global brands manage their customer interactions across digital channels and contact centers.

Why Does CNXC Fall Short?

1. Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 1.6% annually
2. Underwhelming 2.5% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Concentrix’s stock price of $26.03 implies a valuation ratio of 2.2x forward P/E. If you’re considering CNXC for your portfolio, see our FREE research report to learn more.

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