Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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 steer clear of and a few better alternatives.

Hasbro (HAS)

Trailing 12-Month GAAP Operating Margin: 23.4%

Credited with the creation of toys such as Mr. Potato Head and the Rubik’s Cube, Hasbro (NASDAQ: HAS) is a global entertainment company offering a diverse range of toys, games, and multimedia experiences for children and families.

Why Do We Think HAS Will Underperform?

1. Products and services have few die-hard fans as sales have declined by 3.5% annually over the last five years
2. Poor expense management has led to an operating margin of 9.7% that is below the industry average
3. Earnings per share lagged its peers over the last five years as they only grew by 2.7% annually

At $86.78 per share, Hasbro trades at 14.2x forward P/E. Read our free research report to see why you should think twice about including HAS in your portfolio.

General Dynamics (GD)

Trailing 12-Month GAAP Operating Margin: 10.3%

Creator of the famous M1 Abrahms tank, General Dynamics (NYSE: GD) develops aerospace, marine systems, combat systems, and information technology products.

Why Are We Wary of GD?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 7.3% over the last five years was below our standards for the industrials sector
2. Estimated sales growth of 4% for the next 12 months implies demand will slow from its two-year trend
3. Earnings growth underperformed the sector average over the last five years as its EPS grew by just 7.4% annually

General Dynamics’s stock price of $336.59 implies a valuation ratio of 19.6x forward P/E. Dive into our free research report to see why there are better opportunities than GD.

Packaging Corporation of America (PKG)

Trailing 12-Month GAAP Operating Margin: 10.9%

Founded in 1959, Packaging Corporation of America (NYSE: PKG) produces containerboard and corrugated packaging products as well as displays and package protection.

Why Does PKG Give Us Pause?

1. Weak unit sales over the past two years imply it may need to invest in improvements to get back on track
2. Earnings per share have contracted by 1.8% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Packaging Corporation of America is trading at $238.22 per share, or 20.5x forward P/E. To fully understand why you should be careful with PKG, check out our full research report (it’s free).

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