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 companies to steer clear of and a few better alternatives.

Asana (ASAN)

Trailing 12-Month GAAP Operating Margin: -19.4%

Born from the founders' frustration with the inefficiencies of email-based collaboration at Facebook, Asana (NYSE: ASAN) provides a work management platform that helps organizations track projects, set goals, and manage workflows in a centralized digital workspace.

Why Should You Sell ASAN?

1. Average ARR growth of 9.5% over the last year has disappointed, suggesting it’s had a hard time winning long-term deals and renewals
2. Competitive market dynamics make it difficult to retain customers, leading to a weak 96.5% net revenue retention rate
3. Drawn-out sales process reflects its software’s integration hurdles with enterprise clients, restraining customer growth potential

At $9.86 per share, Asana trades at 2.5x forward price-to-sales. To fully understand why you should be careful with ASAN, check out our full research report (it’s free).

Compass (COMP)

Trailing 12-Month GAAP Operating Margin: -2.6%

Fueled by its mission to replace the "paper-driven, antiquated workflow" of buying a house, Compass (NYSE: COMP) is a digital-first company operating a residential real estate brokerage in the United States.

Why Is COMP Risky?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 14% over the last five years was below our standards for the consumer discretionary sector
2. Persistent operating margin losses suggest the business manages its expenses poorly
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

Compass’s stock price of $9.19 implies a valuation ratio of 10x forward P/E. Check out our free in-depth research report to learn more about why COMP doesn’t pass our bar.

Ocular Therapeutix (OCUL)

Trailing 12-Month GAAP Operating Margin: -603%

Pioneering a drug delivery platform that can eliminate the need for monthly eye injections, Ocular Therapeutix (NASDAQ: OCUL) develops sustained-release treatments for eye diseases using its proprietary ELUTYX bioresorbable hydrogel technology that gradually releases medication.

Why Are We Bearish on OCUL?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.7% annually over the last two years
2. Earnings per share fell by 7.5% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. 371.3 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

Ocular Therapeutix is trading at $7.54 per share, or 29.4x forward price-to-sales. Dive into our free research report to see why there are better opportunities than OCUL.

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