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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. Keeping that in mind, here are three unprofitable companiesto steer clear of and a few better alternatives.

Estée Lauder (EL)

Trailing 12-Month GAAP Operating Margin: -4.2%

Named after its founder, who was an entrepreneurial woman from New York with a passion for skincare, Estée Lauder (NYSE:EL) is a one-stop beauty shop with products in skincare, fragrance, makeup, sun protection, and men’s grooming.

Why Do We Think EL Will Underperform?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy

2. Inability to adjust its cost structure while its revenue declined over the last year led to a 12 percentage point drop in the company’s operating margin

3. Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable

At $61 per share, Estée Lauder trades at 28x forward P/E. If you’re considering EL for your portfolio, see our FREE research report to learn more.

Xponential Fitness (XPOF)

Trailing 12-Month GAAP Operating Margin: -16.1%

Owner of CycleBar, Rumble, and Club Pilates, Xponential Fitness (NYSE:XPOF) is a boutique fitness brand offering diverse and specialized exercise experiences.

Why Are We Cautious About XPOF?

1. Muted 9.3% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers

2. Subpar operating margin of 0.1% constrains its ability to invest in process improvements or effectively respond to new competitive threats

3. Negative returns on capital show management lost money while trying to expand the business

Xponential Fitness’s stock price of $8.08 implies a valuation ratio of 7.2x forward P/E. Read our free research report to see why you should think twice about including XPOF in your portfolio, it’s free.

Malibu Boats (MBUU)

Trailing 12-Month GAAP Operating Margin: -1.2%

Founded in California in 1982, Malibu Boats (NASDAQ:MBUU) is a manufacturer of high-performance sports boats and luxury watercrafts.

Why Do We Avoid MBUU?

1. Demand for its offerings was relatively low as its number of boats sold has underwhelmed

2. Sales over the last five years were less profitable as its earnings per share fell by 28.1% annually while its revenue was flat

3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value