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.
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 two unprofitable companies with the potential to become industry leaders and one that may never reach the Promised Land.
One Software Stock to Sell:
Unity (U)
Trailing 12-Month GAAP Operating Margin: -27.5%
Powering over half of the world's mobile games and expanding into industries from automotive to architecture, Unity (NYSE:U) provides software tools and services that allow developers to create, run, and monetize interactive 2D and 3D content across multiple platforms.
Why Do We Pass on U?
- Products, pricing, or go-to-market strategy need some adjustments as its billings have averaged 2.5% declines over the last year
- Projected sales growth of 12.2% for the next 12 months suggests sluggish demand
- Suboptimal cost structure is highlighted by its history of operating margin losses
Unity’s stock price of $42.19 implies a valuation ratio of 8.8x forward price-to-sales. To fully understand why you should be careful with U, check out our full research report (it’s free).
Two Software Stocks to Watch:
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 Outperform?
- Billings have averaged 26.3% growth over the last year, showing it’s securing new contracts that could potentially increase in value over time
- Projected revenue growth of 21.7% for the next 12 months suggests its momentum from the last two years will persist
- ZS is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Zscaler is trading at $209.19 per share, or 9.6x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free.
Freshworks (FRSH)
Trailing 12-Month GAAP Operating Margin: -6.2%
Starting as a customer service solution before expanding into a comprehensive software suite, Freshworks (NASDAQ:FRSH) provides AI-powered software-as-a-service solutions that help companies manage customer service, IT support, sales, and marketing functions.
Why Does FRSH Stand Out?
- Customers view its software as mission-critical to their operations as its ARR has averaged 19% growth over the last year
- Software is difficult to replicate at scale and results in a top-tier gross margin of 84.8%
- Strong free cash flow margin of 25.7% enables it to reinvest or return capital consistently
At $11.72 per share, Freshworks trades at 3.7x forward price-to-sales. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
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Don’t wait for the next volatility shock. Check out our Top 6 Stocks for this week. 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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.