Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages. Just because a business is in the green today doesn’t mean it will thrive tomorrow.
Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. Keeping that in mind, here are three profitable companies to avoid and some better opportunities instead.
Arhaus (ARHS)
Trailing 12-Month GAAP Operating Margin: 5.8%
With an aesthetic that features natural materials such as reclaimed wood, Arhaus (NASDAQ: ARHS) is a high-end furniture retailer that sells everything from sofas to rugs to bookcases.
Why Are We Wary of ARHS?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Subscale operations are evident in its revenue base of $1.29 billion, meaning it has fewer distribution channels than its larger rivals
- Efficiency has decreased over the last year as its operating margin fell by 5 percentage points
At $8.74 per share, Arhaus trades at 16.9x forward P/E. Check out our free in-depth research report to learn more about why ARHS doesn’t pass our bar.
Denny's (DENN)
Trailing 12-Month GAAP Operating Margin: 8.9%
Open around the clock, Denny’s (NASDAQ: DENN) is a chain of diner restaurants serving breakfast and traditional American fare.
Why Should You Sell DENN?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Free cash flow margin dropped by 9 percentage points over the last year, implying the company became more capital intensive as competition picked up
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Denny's is trading at $4.15 per share, or 7.9x forward P/E. Read our free research report to see why you should think twice about including DENN in your portfolio.
Hanesbrands (HBI)
Trailing 12-Month GAAP Operating Margin: 6.5%
A classic American staple founded in 1901, Hanesbrands (NYSE: HBI) is a clothing company known for its array of basic apparel including innerwear and activewear.
Why Are We Out on HBI?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Projected sales decline of 1.3% over the next 12 months indicates demand will continue deteriorating
- Sales were less profitable over the last five years as its earnings per share fell by 19% annually, worse than its revenue declines
Hanesbrands’s stock price of $4.58 implies a valuation ratio of 8.8x forward P/E. Dive into our free research report to see why there are better opportunities than HBI.
High-Quality Stocks for All Market Conditions
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
