1 unprofitable stock for long-term investors and 2 we avoid

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. Keeping that in mind, here is one unprofitable company with the potential to become an industry leader and two that may never reach the Promised Land.

Two stocks to sell:

ZoomInfo (GTM)

Trailing 12-Month GAAP Operating Margin: -35.2%

Operating a platform it calls “RevOS” – short for Revenue Operating System – ZoomInfo (NASDAQ:GTM) provides sales, marketing, and recruiting teams with business intelligence and analytics to identify prospects and deliver targeted outreach.

Why Do We Think GTM Will Underperform?

1. Customers had second thoughts about committing to its platform over the last year as its billings plateaued

2. Forecasted revenue decline of 6.2% for the upcoming 12 months implies demand will fall off a cliff

3. Efficiency has decreased over the last year as its operating margin fell by 49.7 percentage points

ZoomInfo’s stock price of $4.34 implies a valuation ratio of 1.1x forward price-to-sales. Read our free research report to see why you should think twice about including GTM in your portfolio, it’s free.

Evolent Health (EVH)

Trailing 12-Month GAAP Operating Margin: -20.4%

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 Is EVH Not Exciting?

1. Underwhelming average lives on platform over the past two years suggest it might have to lower prices to accelerate growth

2. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

3. 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

At $4.80 per share, Evolent Health trades at 13.9x forward P/E. To fully understand why you should be careful with EVH, check out our full research report (it’s free).

One stock to watch:

Hims & Hers Health (HIMS)

Trailing 12-Month GAAP Operating Margin: -6%

Originally launched with a focus on stigmatized conditions like hair loss and sexual health, Hims & Hers Health (NYSE:HIMS) operates a consumer-focused telehealth platform that connects patients with healthcare providers for prescriptions and wellness products.