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.

A lack of profits can lead to trouble, but StockStory helps you identify the businesses that stand a chance of making it through. Keeping that in mind, here are three unprofitable companiesto steer clear of and a few better alternatives.

Rocket Lab (RKLB)

Trailing 12-Month GAAP Operating Margin: -41.4%

Becoming the first private company in the Southern Hemisphere to reach space, Rocket Lab (NASDAQ: RKLB) offers rockets designed for launching small satellites.

Why Are We Cautious About RKLB?

1. Historical operating margin losses point to an inefficient cost structure
2. Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
3. Cash burn makes us question whether it can achieve sustainable long-term growth

At $80.81 per share, Rocket Lab trades at 57.2x forward price-to-sales. If you’re considering RKLB for your portfolio, see our FREE research report to learn more.

Ducommun (DCO)

Trailing 12-Month GAAP Operating Margin: -4.5%

California’s oldest company, Ducommun (NYSE: DCO) is a provider of engineering and manufacturing services for high-performance products primarily within the aerospace and defense industries.

Why Does DCO Give Us Pause?

1. Average backlog growth of 4.8% over the past two years was mediocre and suggests fewer customers signed long-term contracts
2. Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 12.2 percentage points
3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its falling returns suggest its earlier profit pools are drying up

Ducommun’s stock price of $110.44 implies a valuation ratio of 27.1x forward P/E. Read our free research report to see why you should think twice about including DCO in your portfolio.

Hewlett Packard Enterprise (HPE)

Trailing 12-Month GAAP Operating Margin: -1.3%

Born from the 2015 split of the iconic Silicon Valley pioneer Hewlett-Packard, Hewlett Packard Enterprise (NYSE: HPE) provides edge-to-cloud technology solutions that help businesses capture, analyze, and act upon their data across hybrid IT environments.

Why Are We Hesitant About HPE?

1. Sizable revenue base leads to growth challenges as its 4.9% annual revenue increases over the last five years fell short of other business services companies
2. Incremental sales over the last two years were much less profitable as its earnings per share fell by 5.5% annually while its revenue grew
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 10.5 percentage points

Hewlett Packard Enterprise is trading at $21.31 per share, or 8.9x forward P/E. To fully understand why you should be careful with HPE, check out our full research report (it’s free).

Stocks We Like More

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