Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.
Potbelly (PBPB)
Trailing 12-Month GAAP Operating Margin: 2.5%
With a unique origin story where the company actually started as an antique shop, Potbelly (NASDAQ: PBPB) today is a chain known for its toasty sandwiches.
Why Are We Cautious About PBPB?
- Muted 1.8% annual revenue growth over the last six years shows its demand lagged behind its restaurant peers
- Modest revenue base of $465.1 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Subpar operating margin of 2.6% constrains its ability to invest in process improvements or effectively respond to new competitive threats
Potbelly is trading at $10.62 per share, or 10.8x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including PBPB in your portfolio.
Terex (TEX)
Trailing 12-Month GAAP Operating Margin: 8.6%
With humble beginnings as a dump truck company, Terex (NYSE: TEX) today manufactures lifting and material handling equipment designed to move and hoist heavy goods and materials.
Why Does TEX Give Us Pause?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Earnings per share have contracted by 16.4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.1 percentage points
Terex’s stock price of $44.06 implies a valuation ratio of 9x forward P/E. If you’re considering TEX for your portfolio, see our FREE research report to learn more.
AdaptHealth (AHCO)
Trailing 12-Month GAAP Operating Margin: 7.3%
With a network of approximately 680 locations serving patients across all 50 states, AdaptHealth (NASDAQ: AHCO) provides home medical equipment, supplies, and related services to patients with chronic conditions like sleep apnea, diabetes, and respiratory disorders.
Why Are We Wary of AHCO?
- Muted 3.9% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- ROIC of 1.2% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $8.75 per share, AdaptHealth trades at 8.1x forward P/E. To fully understand why you should be careful with AHCO, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
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.
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