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.

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

Stratasys (SSYS)

Trailing 12-Month GAAP Operating Margin: -15.8%

Born from the Founder’s idea of making a toy frog with a glue gun, Stratasys (NASDAQ: SSYS) offers 3D printers and related materials, software, and services to many industries.

Why Does SSYS Worry Us?

1. Sales tumbled by 6.2% annually over the last two years, showing market trends are working against it during this cycle
2. Historical operating margin losses point to an inefficient cost structure
3. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

Stratasys is trading at $8.42 per share, or 62.8x forward P/E. Check out our free in-depth research report to learn more about why SSYS doesn’t pass our bar.

Methode Electronics (MEI)

Trailing 12-Month GAAP Operating Margin: 1.1%

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

Why Do We Steer Clear of MEI?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.3% annually over the last five years
2. Sales were less profitable over the last five years as its earnings per share fell by 18.6% annually, worse than its revenue declines
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

At $14.92 per share, Methode Electronics trades at 40.6x forward P/E. To fully understand why you should be careful with MEI, check out our full research report (it’s free).

Avantor (AVTR)

Trailing 12-Month GAAP Operating Margin: -4.5%

With roots dating back to 1904 and embedded in virtually every stage of scientific research and production, Avantor (NYSE: AVTR) provides mission-critical products, materials, and services to customers in biopharma, healthcare, education, and advanced technology industries.

Why Are We Out on AVTR?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Sales are projected to be flat over the next 12 months and imply weak demand
3. Earnings per share fell by 4.5% annually over the last five years while its revenue was flat, showing each sale was less profitable

Avantor’s stock price of $9.64 implies a valuation ratio of 11.6x forward P/E. Dive into our free research report to see why there are better opportunities than AVTR.

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