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.

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. That said, here are three unprofitable companiesto steer clear of and a few better alternatives.

Teladoc (TDOC)

Trailing 12-Month GAAP Operating Margin: -10.9%

Founded to help people in rural areas get online medical consultations, Teladoc Health (NYSE: TDOC) is a telemedicine platform that facilitates remote doctor’s visits.

Why Does TDOC Worry Us?

1. Muted 2.9% annual revenue growth over the last three years shows its demand lagged behind its consumer internet peers
2. Preference for prioritizing user growth over monetization has led to 7.9% annual drops in its average revenue per user
3. Demand is forecasted to shrink as its estimated sales for the next 12 months are flat

Teladoc is trading at $4.91 per share, or 3.8x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than TDOC.

Methode Electronics (MEI)

Trailing 12-Month GAAP Operating Margin: -1.8%

Founded in 1946, Methode Electronics (NYSE: MEI) is a global supplier of custom-engineered solutions for Original Equipment Manufacturers (OEMs).

Why Should You Sell MEI?

1. Sales were flat over the last five years, indicating it’s failed to expand this cycle
2. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
3. 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

Methode Electronics’s stock price of $8.56 implies a valuation ratio of 144.3x forward P/E. To fully understand why you should be careful with MEI, check out our full research report (it’s free).

Navient (NAVI)

Trailing 12-Month GAAP Operating Margin: -13.8%

Spun off from Sallie Mae in 2014 to handle the company's loan servicing and collection operations, Navient (NASDAQ: NAVI) provides education loan servicing and business processing solutions that help manage federal student loans, private education loans, and government services.

Why Do We Steer Clear of NAVI?

1. Sales tumbled by 19.2% annually over the last five years, showing market trends are working against its favor during this cycle
2. Earnings per share have contracted by 16.1% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance

At $9.55 per share, Navient trades at 13.5x forward P/E. Read our free research report to see why you should think twice about including NAVI in your portfolio.

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