3 Unprofitable Stocks with Questionable Fundamentals

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.

Semrush (SEMR)

Trailing 12-Month GAAP Operating Margin: -1.7%

Born from the need to make sense of the complex digital marketing landscape, Semrush (NYSE:SEMR) is a software-as-a-service platform that helps companies improve their online visibility, analyze digital marketing efforts, and optimize content across search engines and social media.

Why Do We Think Twice About SEMR?

1. Customers generally do not adopt complementary products as its 106% net revenue retention rate lags behind the industry standard
2. Operating margin declined by 4.3 percentage points over the last year as it scaled
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 9.7% for the last year

Semrush is trading at $11.88 per share, or 3.6x forward price-to-sales. Read our free research report to see why you should think twice about including SEMR in your portfolio.

AeroVironment (AVAV)

Trailing 12-Month GAAP Operating Margin: -6.5%

Focused on the future of autonomous military combat, AeroVironment (NASDAQ:AVAV) specializes in advanced unmanned aircraft systems and electric vehicle charging solutions.

Why Is AVAV Not Exciting?

1. Efficiency has decreased over the last five years as its operating margin fell by 8.4 percentage points
2. Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 9.9% annually
3. Free cash flow margin shrank by 19 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

AeroVironment’s stock price of $285.18 implies a valuation ratio of 58.6x forward P/E. Check out our free in-depth research report to learn more about why AVAV doesn’t pass our bar.

Viatris (VTRS)

Trailing 12-Month GAAP Operating Margin: -18.8%

Created through the 2020 merger of Mylan and Pfizer's Upjohn division, Viatris (NASDAQ:VTRS) is a healthcare company that develops, manufactures, and distributes branded and generic medicines across more than 165 countries worldwide.

Why Are We Out on VTRS?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 4.4% annually over the last two years
2. Earnings per share fell by 13.1% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. Negative returns on capital show that some of its growth strategies have backfired, and its falling returns suggest its earlier profit pools are drying up

At $13.71 per share, Viatris trades at 5.7x forward P/E. Dive into our free research report to see why there are better opportunities than VTRS.

Stocks We Like More

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