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. Keeping that in mind, here are three unprofitable companiesto avoid and some better opportunities instead.

Zillow (ZG)

Trailing 12-Month GAAP Operating Margin: -3.7%

Founded by Expedia co-founders Lloyd Frink and Rich Barton, Zillow (NASDAQ: ZG) is the leading U.S. online real estate marketplace.

Why Are We Hesitant About ZG?

1. Annual sales declines of 6.6% for the past five years show its products and services struggled to connect with the market
2. Persistent operating margin losses suggest the business manages its expenses poorly
3. Push for growth has led to negative returns on capital, signaling value destruction, and its falling returns suggest its earlier profit pools are drying up

Zillow’s stock price of $65.59 implies a valuation ratio of 31.7x forward P/E. Dive into our free research report to see why there are better opportunities than ZG.

Hasbro (HAS)

Trailing 12-Month GAAP Operating Margin: -5.2%

Credited with the creation of toys such as Mr. Potato Head and the Rubik’s Cube, Hasbro (NASDAQ: HAS) is a global entertainment company offering a diverse range of toys, games, and multimedia experiences for children and families.

Why Do We Avoid HAS?

1. Sales tumbled by 3.4% annually over the last five years, showing consumer trends are working against its favor
2. Poor expense management has led to operating margin losses
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

At $75.59 per share, Hasbro trades at 15.1x forward P/E. Read our free research report to see why you should think twice about including HAS in your portfolio.

QuidelOrtho (QDEL)

Trailing 12-Month GAAP Operating Margin: -35.1%

Born from the 2022 merger of Quidel and Ortho Clinical Diagnostics, QuidelOrtho (NASDAQ: QDEL) develops and manufactures diagnostic testing solutions for healthcare providers, from rapid point-of-care tests to complex laboratory instruments and systems.

Why Are We Out on QDEL?

1. Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
2. Free cash flow margin dropped by 27.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

QuidelOrtho is trading at $21.28 per share, or 10x forward P/E. If you’re considering QDEL for your portfolio, see our FREE research report to learn more.

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