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.

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.

BILL (BILL)

Trailing 12-Month GAAP Operating Margin: -6.2%

Transforming the messy back-office financial operations that plague small business owners, BILL (NYSE: BILL) provides a cloud-based platform that automates accounts payable, accounts receivable, and expense management for small and midsize businesses.

Why Does BILL Worry Us?

1. Average billings growth of 11.9% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
2. Estimated sales growth of 10.5% for the next 12 months implies demand will slow from its two-year trend
3. Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage

BILL’s stock price of $55.45 implies a valuation ratio of 3.4x forward price-to-sales. Check out our free in-depth research report to learn more about why BILL doesn’t pass our bar.

Chegg (CHGG)

Trailing 12-Month GAAP Operating Margin: -9.6%

Started as a physical textbook rental service, Chegg (NYSE: CHGG) is now a digital platform addressing student pain points by providing study and academic assistance.

Why Do We Pass on CHGG?

1. Services Subscribers have declined by 18.9% annually over the last two years, suggesting it may need to revamp its features or user experience to stay competitive
2. Overall productivity fell over the last few years as its plummeting sales were accompanied by a decline in its EBITDA margin
3. Sales were less profitable over the last three years as its earnings per share fell by 45.3% annually, worse than its revenue declines

Chegg is trading at $0.93 per share, or 2.4x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than CHGG.

Fastly (FSLY)

Trailing 12-Month GAAP Operating Margin: -23.4%

Taking its name from the core advantage it delivers to customers, Fastly (NYSE: FSLY) operates an edge cloud platform that processes, secures, and delivers web content as close to end users as possible, enabling faster digital experiences.

Why Is FSLY Risky?

1. Customers generally do not adopt complementary products as its 103% net revenue retention rate lags behind the industry standard
2. Sky-high servicing costs result in an inferior gross margin of 55% that must be offset through increased usage
3. Poor expense management has led to operating margin losses

At $10.28 per share, Fastly trades at 2.3x forward price-to-sales. To fully understand why you should be careful with FSLY, check out our full research report (it’s free for active Edge members).

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