Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. That said, here are three profitable companies to avoid and some better opportunities instead.
Microchip Technology (MCHP)
Trailing 12-Month GAAP Operating Margin: 6.7%
Spun out from General Instrument in 1987, Microchip Technology (NASDAQ: MCHP) is a leading provider of microcontrollers and integrated circuits used mainly in the automotive world, especially in electric vehicles and their charging devices.
Why Is MCHP Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.6% annually over the last five years
- Overall productivity fell over the last five years as its plummeting sales were accompanied by a decline in its operating margin
- Free cash flow margin shrank by 16 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Microchip Technology’s stock price of $67.09 implies a valuation ratio of 60.2x forward P/E. To fully understand why you should be careful with MCHP, check out our full research report (it’s free).
Ingram Micro (INGM)
Trailing 12-Month GAAP Operating Margin: 1.7%
Operating as the crucial link in the global technology supply chain with a presence in 57 countries, Ingram Micro (NYSE: INGM) is a global technology distributor that connects manufacturers with resellers, providing hardware, software, cloud services, and logistics expertise.
Why Should You Sell INGM?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Poor free cash flow margin of 0.5% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Ingram Micro is trading at $19.47 per share, or 6.4x forward P/E. Dive into our free research report to see why there are better opportunities than INGM.
Vimeo (VMEO)
Trailing 12-Month GAAP Operating Margin: 2.4%
Originally launched in 2004 as a platform for filmmakers seeking a high-quality alternative to YouTube, Vimeo (NASDAQ: VMEO) provides cloud-based video creation, editing, hosting, and distribution software that helps businesses and creators make, manage, and share professional-quality videos.
Why Does VMEO Give Us Pause?
- Annual sales declines of 1.5% for the past two years show its products and services struggled to connect with the market during this cycle
- Modest revenue base of $415.1 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Negative returns on capital show that some of its growth strategies have backfired
At $4.05 per share, Vimeo trades at 22.2x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why VMEO doesn’t pass our bar.
Stocks We Like More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. 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
