Yahoo Finance

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.

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 is one unprofitable company investing heavily to secure market share and two best left off your radar.

Two Stocks to Sell:

Sportsman's Warehouse (SPWH)

Trailing 12-Month GAAP Operating Margin: -1.3%

A go-to destination for individuals passionate about hunting, fishing, camping, hiking, shooting sports, and more, Sportsman's Warehouse (NASDAQ:SPWH) is an American specialty retailer offering a diverse range of active gear, equipment, and apparel.

Why Are We Out on SPWH?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience

2. Historical operating losses point to an inefficient cost structure

3. 15× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

Sportsman's Warehouse is trading at $1.99 per share, or 2.1x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SPWH doesn’t pass our bar.

1-800-FLOWERS (FLWS)

Trailing 12-Month GAAP Operating Margin: -2.8%

Founded in 1976, 1-800-FLOWERS (NASDAQ:FLWS) is an online retailer of flowers, gifts, and gourmet foods, serving customers globally.

Why Do We Steer Clear of FLWS?

1. Products and services have few die-hard fans as sales have declined by 9.9% annually over the last two years

2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 24.2% annually

3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

At $4.78 per share, 1-800-FLOWERS trades at 15.8x forward P/E. If you’re considering FLWS for your portfolio, see our FREE research report to learn more.

One Stock to Watch:

Arlo Technologies (ARLO)

Trailing 12-Month GAAP Operating Margin: -4.7%

Originally spun off from networking equipment maker Netgear in 2018, Arlo Technologies (NYSE:ARLO) provides cloud-based smart security devices and subscription services that help consumers and businesses monitor and protect their homes, properties, and loved ones.

Why Are We Positive On ARLO?

1. Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage

2. Incremental sales significantly boosted profitability as its annual earnings per share growth of 193% over the last two years outstripped its revenue performance

3. Free cash flow margin grew by 19.7 percentage points over the last five years, giving the company more chips to play with