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.

Finding the right unprofitable companies is difficult, which is why we started StockStory - to help you navigate the market. That said, here are three unprofitable companiesthat don’t make the cut and some better opportunities instead.

J. M. Smucker (SJM)

Trailing 12-Month GAAP Operating Margin: -11.2%

Best known for its fruit jams and spreads, J.M Smucker (NYSE: SJM) is a packaged foods company whose products span from peanut butter and coffee to pet food.

Why Do We Steer Clear of SJM?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 27.1 percentage points
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its falling returns suggest its earlier profit pools are drying up

At $105.36 per share, J. M. Smucker trades at 11.1x forward P/E. Read our free research report to see why you should think twice about including SJM in your portfolio.

Soho House (SHCO)

Trailing 12-Month GAAP Operating Margin: -1.3%

Boasting fancy locations in hubs such as NYC and Miami, Soho House (NYSE: SHCO) is a global hospitality brand offering exclusive private member clubs, hotels, and restaurants.

Why Are We Hesitant About SHCO?

1. Number of members has disappointed over the past two years, indicating weak demand for its offerings
2. Cash burn makes us question whether it can achieve sustainable long-term growth
3. 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

Soho House’s stock price of $8.87 implies a valuation ratio of 14.5x forward EV-to-EBITDA. To fully understand why you should be careful with SHCO, check out our full research report (it’s free for active Edge members).

Alight (ALIT)

Trailing 12-Month GAAP Operating Margin: -44%

Born from a corporate spinoff in 2017 to focus on employee experience technology, Alight (NYSE: ALIT) provides human capital management solutions that help companies administer employee benefits, payroll, and workforce management systems.

Why Should You Dump ALIT?

1. Sales tumbled by 2.5% annually over the last five years, showing market trends are working against its favor during this cycle
2. Earnings per share have contracted by 6% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

Alight is trading at $3.03 per share, or 4.8x forward P/E. Dive into our free research report to see why there are better opportunities than ALIT.

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