Unprofitable companies can burn through cash quickly, leaving investors exposed if they fail to turn things around. Without a clear path to profitability, these businesses risk running out of capital or relying on dilutive fundraising.

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 companiesto avoid and some better opportunities instead.

C3.ai (AI)

Trailing 12-Month GAAP Operating Margin: -101%

Named after the three Cs of its original focus—carbon, cloud computing, and customer relationship management—C3.ai (NYSE: AI) provides enterprise AI software that helps organizations develop, deploy, and operate large-scale artificial intelligence applications across various industries.

Why Should You Sell AI?

1. 11.9% annual revenue growth over the last three years was slower than its software peers
2. Gross margin of 56.6% reflects its high servicing costs
3. Cash-burning history makes us doubt the long-term viability of its business model

C3.ai is trading at $17.35 per share, or 7.6x forward price-to-sales. Read our free research report to see why you should think twice about including AI in your portfolio.

Kraft Heinz (KHC)

Trailing 12-Month GAAP Operating Margin: -27.3%

The result of a 2015 mega-merger between Kraft and Heinz, Kraft Heinz (NASDAQ: KHC) is a packaged foods giant whose products span coffee to cheese to packaged meat.

Why Do We Pass on KHC?

1. Shrinking unit sales over the past two years suggest it might have to lower prices to stimulate growth
2. Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 41.7 percentage points
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam

Kraft Heinz’s stock price of $25.80 implies a valuation ratio of 9.8x forward P/E. To fully understand why you should be careful with KHC, check out our full research report (it’s free).

Fluence Energy (FLNC)

Trailing 12-Month GAAP Operating Margin: -1.1%

Pioneering the use of lithium-ion batteries for grid storage, Fluence (NASDAQ: FLNC) helps store renewable energy sources with battery systems.

Why Are We Cautious About FLNC?

1. Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 7.2%
2. Free cash flow margin dropped by 6.4 percentage points over the last five years, implying the company increased its investment activities to fend off competitors
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $7.48 per share, Fluence Energy trades at 102.5x forward P/E. Check out our free in-depth research report to learn more about why FLNC doesn’t pass our bar.

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