Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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. That said, here are three profitable companies to steer clear of and a few better alternatives.
PepsiCo (PEP)
Trailing 12-Month GAAP Operating Margin: 13.9%
With a history that goes back more than a century, PepsiCo (NASDAQ: PEP) is a household name in food and beverages today and best known for its flagship soda.
Why Does PEP Worry Us?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 4.2% over the last three years was below our standards for the consumer staples sector
- Falling unit sales over the past two years suggest it might have to lower prices to stimulate growth
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
PepsiCo’s stock price of $131.93 implies a valuation ratio of 15.8x forward P/E. Dive into our free research report to see why there are better opportunities than PEP.
Steven Madden (SHOO)
Trailing 12-Month GAAP Operating Margin: 9.7%
As seen in the infamous Wolf of Wall Street movie, Steven Madden (NASDAQ: SHOO) is a fashion brand famous for its trendy and innovative footwear, appealing to a young and style-conscious audience.
Why Is SHOO Not Exciting?
- Muted 5.7% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
- Earnings per share lagged its peers over the last five years as they only grew by 9.2% annually
- Free cash flow margin is forecasted to shrink by 2.6 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
Steven Madden is trading at $26.09 per share, or 13.2x forward P/E. If you’re considering SHOO for your portfolio, see our FREE research report to learn more.
Delta (DAL)
Trailing 12-Month GAAP Operating Margin: 9.6%
One of the ‘Big Four’ airlines in the US, Delta Air Lines (NYSE: DAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.
Why Is DAL Risky?
- Sluggish trends in its revenue passenger miles suggest customers aren’t adopting its solutions as quickly as the company hoped
- Projected sales decline of 1.2% for the next 12 months points to a tough demand environment ahead
- Push for growth has led to negative returns on capital, signaling value destruction
At $48.47 per share, Delta trades at 7.8x forward P/E. Check out our free in-depth research report to learn more about why DAL 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 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 Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.
