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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. Keeping that in mind, here are three unprofitable companiesto avoid and some better opportunities instead.

Yext (YEXT)

Trailing 12-Month GAAP Operating Margin: -7.7%

Founded in 2006 by Howard Lerman, Yext (NYSE:YEXT) offers software as a service that helps their clients manage and monitor their online listings and customer reviews across all relevant databases, from Google Maps to Alexa or Siri.

Why Do We Avoid YEXT?

1. Underwhelming ARR growth of 4% over the last year suggests the company faced challenges in acquiring and retaining long-term customers

2. Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue

3. Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 6.2 percentage points

At $6.46 per share, Yext trades at 1.8x forward price-to-sales. Read our free research report to see why you should think twice about including YEXT in your portfolio, it’s free.

Olo (OLO)

Trailing 12-Month GAAP Operating Margin: -6.7%

Founded by Noah Glass, who wanted to get a cup of coffee faster on his way to work, Olo (NYSE:OLO) provides restaurants and food retailers with software to manage food orders and delivery.

Why Do We Think Twice About OLO?

1. Sky-high servicing costs result in an inferior gross margin of 54.9% that must be offset through increased usage

2. Operating losses show it sacrificed profitability while scaling the business

3. Free cash flow margin is expected to remain in place over the coming year

Olo’s stock price of $6.28 implies a valuation ratio of 3.1x forward price-to-sales. To fully understand why you should be careful with OLO, check out our full research report (it’s free).

Paycor (PYCR)

Trailing 12-Month GAAP Operating Margin: -2.7%

Founded in 1990 in Cincinnati, Ohio, Paycor (NASDAQ: PYCR) provides software for small businesses to manage their payroll and HR needs in one place.

Why Are We Hesitant About PYCR?

1. High servicing costs result in a relatively inferior gross margin of 66% that must be offset through increased usage

2. Suboptimal cost structure is highlighted by its history of operating losses

3. Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year