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 three unprofitable companiesto avoid and some better opportunities instead.

Matrix Service (MTRX)

Trailing 12-Month GAAP Operating Margin: -2.2%

Founded in Oklahoma, Matrix Service (NASDAQ: MTRX) provides engineering, fabrication, construction, and maintenance services primarily to the energy and industrial markets.

Why Does MTRX Give Us Pause?

1. Sales trends were unexciting over the last five years as its 1.1% annual growth was below the typical industrials company
2. High input costs result in an inferior gross margin of 3.7% that must be offset through higher volumes
3. Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 21.4% annually

At $10.44 per share, Matrix Service trades at 15.7x forward P/E. Check out our free in-depth research report to learn more about why MTRX doesn’t pass our bar.

AMN Healthcare Services (AMN)

Trailing 12-Month GAAP Operating Margin: -2%

With a network of thousands of healthcare professionals ranging from nurses to physicians to executives, AMN Healthcare (NYSE: AMN) provides healthcare workforce solutions including temporary staffing, permanent placement, and technology platforms for hospitals and healthcare facilities across the United States.

Why Do We Steer Clear of AMN?

1. Declining travelers on assignment over the past two years imply it may need to invest in improvements to get back on track
2. Earnings per share have contracted by 16.9% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
3. Eroding returns on capital suggest its historical profit centers are aging

AMN Healthcare Services’s stock price of $19.44 implies a valuation ratio of 10x forward P/E. If you’re considering AMN for your portfolio, see our FREE research report to learn more.

Evolent Health (EVH)

Trailing 12-Month GAAP Operating Margin: -21.9%

Founded in 2011 to transform how healthcare is delivered to patients with complex needs, Evolent Health (NYSE: EVH) provides specialty care management services and technology solutions that help health plans and providers deliver better care for patients with complex conditions.

Why Are We Wary of EVH?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.3% annually over the last two years
2. Negative returns on capital show management lost money while trying to expand the business, and its falling returns suggest its earlier profit pools are drying up
3. High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Evolent Health is trading at $3.09 per share, or 17.8x forward P/E. Read our free research report to see why you should think twice about including EVH in your portfolio.

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