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 is one unprofitable company investing heavily to secure market share and two that could struggle to survive.

Trailing 12-Month GAAP Operating Margin: -5.6%

Getting its start in daily fantasy sports, DraftKings (NASDAQ:DKNG) is a digital sports entertainment and gaming company.

Why Are We Wary of DKNG?

Demand for its offerings was relatively low as its number of monthly unique players has underwhelmed

Historical operating margin losses point to an inefficient cost structure

Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year

DraftKings’s stock price of $32.60 implies a valuation ratio of 31.7x forward P/E. Dive into our free research report to see why there are better opportunities than DKNG.

Trailing 12-Month GAAP Operating Margin: -4.6%

With an emphasis on skate and surf culture, Tilly’s (NYSE:TLYS) is a specialty retailer that sells clothing, footwear, and accessories geared towards fashion-forward teens and young adults.

Why Do We Avoid TLYS?

Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations

Cash-burning history makes us doubt the long-term viability of its business model

Negative EBITDA restricts its access to capital and increases the probability of shareholder dilution if things turn unexpectedly

At $1.68 per share, Tilly's trades at 0.1x forward price-to-sales. Read our free research report to see why you should think twice about including TLYS in your portfolio, it’s free.

Trailing 12-Month GAAP Operating Margin: -9.6%

With a massive network spanning more than 310 cities in over 120 countries, Cloudflare (NYSE:NET) provides a global network that delivers security, performance and reliability services to protect websites, applications, and corporate networks.

Why Do We Love NET?

Billings growth has averaged 34.2% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases

Notable projected revenue growth of 27.6% for the next 12 months hints at market share gains

Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently

Cloudflare is trading at $184 per share, or 25x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free.

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