Unprofitable companies can burn through cash quickly, leaving investors exposed if they fail to turn things around. Without a clear path to profitability, these businesses risk running out of capital or relying on dilutive fundraising.

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.

Varonis Systems (VRNS)

Trailing 12-Month GAAP Operating Margin: -20.4%

Beginning with protecting Windows file shares in 2005 and evolving into a comprehensive security platform, Varonis Systems (NASDAQ: VRNS) provides data security software that helps organizations protect sensitive information, detect threats, and comply with privacy regulations.

Why Do We Think Twice About VRNS?

1. Annual revenue growth of 11% over the last three years was below our standards for the software sector
2. Suboptimal cost structure is highlighted by its history of operating margin losses
3. Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 2.9 percentage points

Varonis Systems is trading at $56.20 per share, or 9.3x forward price-to-sales. Dive into our free research report to see why there are better opportunities than VRNS.

Sweetgreen (SG)

Trailing 12-Month GAAP Operating Margin: -15.7%

Founded in 2007 by three Georgetown University alum, Sweetgreen (NYSE: SG) is a casual quick service chain known for its healthy salads and bowls.

Why Are We Cautious About SG?

1. Persistent operating margin losses suggest the business manages its expenses poorly
2. Free cash flow margin shrank by 7.3 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

At $8.49 per share, Sweetgreen trades at 24.7x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SG doesn’t pass our bar.

American Outdoor Brands (AOUT)

Trailing 12-Month GAAP Operating Margin: -2.1%

Spun off from Smith and Wesson in 2020, American Outdoor Brands (NASDAQ: AOUT) is an outdoor and recreational products company that offers outdoor and shooting sports products but does not sell firearms themselves.

Why Is AOUT Risky?

1. 2.6% annual revenue growth over the last five years was slower than its consumer discretionary peers
2. Earnings per share have contracted by 34.3% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

American Outdoor Brands’s stock price of $8.81 implies a valuation ratio of 7.6x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including AOUT in your portfolio.

High-Quality Stocks for All Market Conditions

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 5 Growth Stocks for this month. 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-small-cap company Comfort Systems (+782% 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

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.