While profitability is essential, it doesn’t guarantee long-term success. Some companies that rest on their margins will lose ground as competition intensifies - as Jeff Bezos said, "Your margin is my opportunity".
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.
Palo Alto Networks (PANW)
Trailing 12-Month GAAP Operating Margin: 11.1%
Founded in 2005 by cybersecurity engineer Nir Zuk, Palo Alto Networks (NASDAQ: PANW) makes hardware and software cybersecurity products that protect companies from cyberattacks, breaches, and malware threats.
Why Does PANW Worry Us?
- Annual revenue growth of 19.7% over the last three years was below our standards for the software sector
- Offerings struggled to generate meaningful interest as its average billings growth of 3% over the last year did not impress
Palo Alto Networks’s stock price of $201.40 implies a valuation ratio of 14.1x forward price-to-sales. Check out our free in-depth research report to learn more about why PANW doesn’t pass our bar.
Knight-Swift Transportation (KNX)
Trailing 12-Month GAAP Operating Margin: 3.9%
Covering 1.6 billion loaded miles in 2023 alone, Knight-Swift Transportation (NYSE: KNX) offers less-than-truckload and full truckload delivery services.
Why Should You Sell KNX?
- Annual revenue growth of 1.2% over the last two years was below our standards for the industrials sector
- Free cash flow margin dropped by 9.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $47.39 per share, Knight-Swift Transportation trades at 24.2x forward P/E. Dive into our free research report to see why there are better opportunities than KNX.
Labcorp (LH)
Trailing 12-Month GAAP Operating Margin: 8.3%
With over 600 million tests performed annually and involvement in 90% of FDA-approved drugs in 2023, Labcorp (NYSE: LH) provides laboratory testing services and drug development solutions to doctors, hospitals, pharmaceutical companies, and patients worldwide.
Why Are We Cautious About LH?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 13.3 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
Labcorp is trading at $261.89 per share, or 15.9x forward P/E. To fully understand why you should be careful with LH, 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.
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-small-cap company Comfort Systems (+782% 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
