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 companiesto avoid and some better opportunities instead.

Health Catalyst (HCAT)

Trailing 12-Month GAAP Operating Margin: -21.6%

Founded by healthcare professionals Tom Burton and Steve Barlow in 2008, Health Catalyst (NASDAQ: HCAT) provides data and analytics technology to healthcare organizations, enabling them to improve care and lower costs.

Why Does HCAT Fall Short?

1. 7% annual revenue growth over the last three years was slower than its software peers
2. Gross margin of 45.9% reflects its high servicing costs
3. Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low

Health Catalyst is trading at $3.75 per share, or 0.7x forward price-to-sales. If you’re considering HCAT for your portfolio, see our FREE research report to learn more.

Upland (UPLD)

Trailing 12-Month GAAP Operating Margin: -4.4%

Founder Jack McDonald’s second software rollup, Upland Software (NASDAQ: UPLD) is a one stop shop for sales and marketing software, project management, HR, and contact center services for small and medium sized businesses.

Why Are We Out on UPLD?

1. Sales tumbled by 4.4% annually over the last three years, showing industry trends like AI are working against its favor
2. Forecasted revenue decline of 22.7% for the upcoming 12 months implies demand will fall even further
3. Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue

Upland’s stock price of $1.94 implies a valuation ratio of 0.3x forward price-to-sales. Dive into our free research report to see why there are better opportunities than UPLD.

QuidelOrtho (QDEL)

Trailing 12-Month GAAP Operating Margin: -6.2%

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 Should You Sell 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. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 28.6 percentage points
3. Waning returns on capital imply its previous profit engines are losing steam

At $28.02 per share, QuidelOrtho trades at 10.4x forward P/E. Read our free research report to see why you should think twice about including QDEL in your portfolio.

Stocks We Like More

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