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 companies that don’t make the cut and some better opportunities instead.

Teladoc (TDOC)

Trailing 12-Month GAAP Operating Margin: -7.5%

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. Products and services fail to spark excitement with consumers, as seen in its flat sales over the last three years
2. Preference for prioritizing user growth over monetization has led to 9.2% annual drops in its average revenue per user
3. Projected sales decline of 5.1% for the next 12 months points to an even tougher demand environment ahead

Teladoc’s stock price of $6.40 implies a valuation ratio of 8.4x forward EV/EBITDA. If you’re considering TDOC for your portfolio, see our FREE research report to learn more.

Medifast (MED)

Trailing 12-Month GAAP Operating Margin: -6.8%

Known for its Optavia program that combines portion-controlled meal replacements with coaching, Medifast (NYSE: MED) has a broad product portfolio of bars, snacks, drinks, and desserts for those looking to lose weight or consume healthier foods.

Why Is MED Risky?

1. Annual revenue declines of 38.7% over the last three years indicate problems with its market positioning
2. Operating margin declined by 9.5 percentage points over the last year as its sales cratered
3. Earnings per share have contracted by 29.9% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance

Medifast is trading at $12.22 per share, or 0.5x forward price-to-sales. Check out our free in-depth research report to learn more about why MED doesn’t pass our bar.

Mayville Engineering (MEC)

Trailing 12-Month GAAP Operating Margin: -2.2%

Originally founded solely on tool and die manufacturing, Mayville Engineering Company (NYSE: MEC) specializes in metal fabrication, tube bending, and welding to be used in various industries.

Why Are We Bearish on MEC?

1. Sales tumbled by 3.7% annually over the last two years, showing market trends are working against it during this cycle
2. Gross margin of 12.2% is below its competitors, leaving less money to invest in areas like marketing and R&D
3. Earnings per share fell by 17% annually over the last five years while its revenue grew, partly because it diluted shareholders

At $21.71 per share, Mayville Engineering trades at 34.2x forward P/E. Read our free research report to see why you should think twice about including MEC in your portfolio.

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