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.

Finding the right unprofitable companies is difficult, which is why we started StockStory - to help you navigate the market. That said, here are three unprofitable companiesto avoid and some better opportunities instead.

PubMatic (PUBM)

Trailing 12-Month GAAP Operating Margin: -3.8%

Powering billions of daily ad impressions across the open internet, PubMatic (NASDAQ: PUBM) operates a technology platform that helps publishers maximize revenue from their digital advertising inventory while giving advertisers more control and transparency.

Why Do We Avoid PUBM?

1. Struggled to drive increased usage of its software, demonstrated by its subpar 107% net revenue retention rate
2. Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
3. Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 8.4 percentage points over the next year

PubMatic’s stock price of $8.84 implies a valuation ratio of 1.5x forward price-to-sales. Read our free research report to see why you should think twice about including PUBM in your portfolio.

BeautyHealth (SKIN)

Trailing 12-Month GAAP Operating Margin: -9.3%

Operating in the emerging beauty health category, the appropriately named BeautyHealth (NASDAQ: SKIN) is a skincare company best known for its Hydrafacial product that cleanses and hydrates skin.

Why Do We Steer Clear of SKIN?

1. Sales tumbled by 4.4% annually over the last three years, showing consumer trends are working against its favor
2. Modest revenue base of $301.9 million gives it less fixed cost leverage and fewer distribution channels than larger companies
3. Historical operating margin losses point to an inefficient cost structure

At $1.54 per share, BeautyHealth trades at 9.8x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SKIN doesn’t pass our bar.

EchoStar (SATS)

Trailing 12-Month GAAP Operating Margin: -112%

Following its 2023 acquisition of DISH Network, EchoStar (NASDAQ: SATS) provides satellite communications, pay-TV services, wireless networks, and broadband solutions across consumer and enterprise markets.

Why Do We Pass on SATS?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.6% annually over the last two years
2. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
3. Negative EBITDA restricts its access to capital and increases the probability of shareholder dilution if things turn unexpectedly

EchoStar is trading at $104.54 per share, or 28x forward EV-to-EBITDA. To fully understand why you should be careful with SATS, check out our full research report (it’s free for active Edge members).

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