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. Keeping that in mind, here are three unprofitable companiesto steer clear of and a few better alternatives.

Tilly's (TLYS)

Trailing 12-Month GAAP Operating Margin: -1.6%

With an emphasis on skate and surf culture, Tilly’s (NYSE: TLYS) is a specialty retailer that sells clothing, footwear, and accessories geared towards fashion-forward teens and young adults.

Why Should You Dump TLYS?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Earnings per share have contracted by 55.2% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
3. Negative EBITDA restricts its access to capital and increases the probability of shareholder dilution if things turn unexpectedly

Tilly's is trading at $2.63 per share, or 75.6x forward EV-to-EBITDA. To fully understand why you should be careful with TLYS, check out our full research report (it’s free).

Heartland Express (HTLD)

Trailing 12-Month GAAP Operating Margin: -7.1%

Founded by the son of a trucker, Heartland Express (NASDAQ: HTLD) offers full-truckload deliveries across the United States and Mexico.

Why Are We Out on HTLD?

1. Annual sales declines of 18.3% for the past two years show its products and services struggled to connect with the market during this cycle
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 12.1 percentage points
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

At $9.54 per share, Heartland Express trades at 6.7x forward EV-to-EBITDA. If you’re considering HTLD for your portfolio, see our FREE research report to learn more.

JELD-WEN (JELD)

Trailing 12-Month GAAP Operating Margin: -13%

Founded in the 1960s as a general wood-making company, JELD-WEN (NYSE: JELD) manufactures doors, windows, and other related building products.

Why Do We Avoid JELD?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

JELD-WEN’s stock price of $1.50 implies a valuation ratio of 9.4x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including JELD in your portfolio.

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