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. That said, here are three unprofitable companiesto steer clear of and a few better alternatives.

Kraft Heinz (KHC)

Trailing 12-Month GAAP Operating Margin: -18.7%

The result of a 2015 mega-merger between Kraft and Heinz, Kraft Heinz (NASDAQ: KHC) is a packaged foods giant whose products span coffee to cheese to packaged meat.

Why Are We Out on KHC?

1. Falling unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
2. Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
3. Operating profits fell over the last year as its sales dropped and it struggled to adjust its fixed costs

Kraft Heinz is trading at $24.38 per share, or 11.8x forward P/E. Dive into our free research report to see why there are better opportunities than KHC.

RXO (RXO)

Trailing 12-Month GAAP Operating Margin: -1.2%

With access to millions of trucks, RXO (NYSE: RXO) offers full-truckload, less-than-truckload, and last-mile deliveries.

Why Do We Pass on RXO?

1. Flat unit sales over the past two years imply it may need to invest in improvements to get back on track
2. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
3. 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

RXO’s stock price of $15.79 implies a valuation ratio of 8,435.5x forward P/E. To fully understand why you should be careful with RXO, check out our full research report (it’s free).

American Outdoor Brands (AOUT)

Trailing 12-Month GAAP Operating Margin: -2.6%

Spun off from Smith and Wesson in 2020, American Outdoor Brands (NASDAQ: AOUT) is an outdoor and recreational products company that offers outdoor and shooting sports products but does not sell firearms themselves.

Why Should You Dump AOUT?

1. Sales stagnated over the last five years and signal the need for new growth strategies
2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 1.5% for the last two years
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

At $9.35 per share, American Outdoor Brands trades at 42x forward P/E. Dive into our free research report to see why there are better opportunities than AOUT.

Stocks We Like More

Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.

The names generating the next wave of massive growth are right here in our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.