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.

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 steer clear of and a few better alternatives.

JFrog (FROG)

Trailing 12-Month GAAP Operating Margin: -22%

Named after the amphibian that continuously evolves from egg to tadpole to adult, JFrog (NASDAQ: FROG) provides a platform that helps organizations securely create, store, manage, and distribute software packages across any system.

Why Is FROG Not Exciting?

1. Operating losses show it sacrificed profitability while scaling the business
2. Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 8.9 percentage points

JFrog is trading at $48.23 per share, or 10.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than FROG.

PlayStudios (MYPS)

Trailing 12-Month GAAP Operating Margin: -12.8%

Founded by a team of former gaming industry executives, PlayStudios (NASDAQ: MYPS) offers free-to-play digital casino games.

Why Do We Avoid MYPS?

1. Demand for its offerings was relatively low as its number of daily active users has underwhelmed
2. Poor expense management has led to operating margin losses
3. Earnings per share have dipped by 12.6% annually over the past three years, which is concerning because stock prices follow EPS over the long term

At $0.96 per share, PlayStudios trades at 2.4x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why MYPS doesn’t pass our bar.

RXO (RXO)

Trailing 12-Month GAAP Operating Margin: -1.2%

With access to millions of trucks, RXO (NYSE: RXO) offers full-truckload, less-than-truckload, and last-mile deliveries.

Why Are We Cautious About RXO?

1. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 5.4 percentage points
2. Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 61.7% annually
3. ROIC of -0.6% reflects management’s challenges in identifying attractive investment opportunities

RXO’s stock price of $16.92 implies a valuation ratio of 62.8x forward P/E. To fully understand why you should be careful with RXO, check out our full research report (it’s free).

Stocks We Like More

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