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.
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 two unprofitable companies with the potential to become industry leaders and one that could struggle to survive.
One Stock to Sell:
PubMatic (PUBM)
Trailing 12-Month GAAP Operating Margin: -5%
Powering billions of daily ad impressions across the open internet, PubMatic (NASDAQ:PUBM) operates a technology platform that helps publishers maximize revenue from their digital advertising inventory while giving advertisers more control and transparency.
Why Do We Avoid PUBM?
- Net revenue retention rate of 96% shows it has a tough time retaining customers
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 11.5 percentage points
At $16.39 per share, PubMatic trades at 2.4x forward price-to-sales. Check out our free in-depth research report to learn more about why PUBM doesn’t pass our bar.
Two Stocks to Buy:
Zscaler (ZS)
Trailing 12-Month GAAP Operating Margin: -4.7%
Pioneering the "zero trust" approach that has fundamentally changed enterprise network security, Zscaler (NASDAQ:ZS) provides a cloud-based security platform that connects users, devices, and applications securely without traditional network-based security hardware.
Why Will ZS Beat the Market?
- ARR growth averaged 24.4% over the last year, showing customers are willing to take multi-year bets on its software
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
- Robust free cash flow margin of 28.1% gives it many options for capital deployment
Zscaler’s stock price of $174.70 implies a valuation ratio of 7.9x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
Snap (SNAP)
Trailing 12-Month GAAP Operating Margin: -5.1%
Founded by Stanford University students Evan Spiegel, Reggie Brown, and Bobby Murphy, and originally called Picaboo, Snapchat (NYSE: SNAP) is an image centric social media network.
Why Do We Love SNAP?
- Disciplined cost controls and effective management resulted in a strong two-year EBITDA margin of 13.2%, and its profits increased over the last few years as it scaled
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 36.4% over the last three years outstripped its revenue performance
- Free cash flow margin increased by 9.3 percentage points over the last few years, giving the company more capital to invest or return to shareholders
Snap is trading at $5.22 per share, or 7x forward EV/EBITDA. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.