Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.

Qorvo (QRVO)

Trailing 12-Month GAAP Operating Margin: 10.9%

Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.

Why Do We Avoid QRVO?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
2. Sales are projected to tank by 10% over the next 12 months as demand evaporates
3. Sales over the last five years were less profitable as its earnings per share fell by 4.7% annually while its revenue was flat

Qorvo’s stock price of $80.65 implies a valuation ratio of 13x forward P/E. Read our free research report to see why you should think twice about including QRVO in your portfolio.

PepsiCo (PEP)

Trailing 12-Month GAAP Operating Margin: 12.2%

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 Do We Think Twice About PEP?

1. Falling unit sales over the past two years imply it may need to invest in product improvements to get back on track
2. Anticipated sales growth of 4.8% for the next year implies demand will be shaky
3. Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 1.8 percentage points

At $151.31 per share, PepsiCo trades at 17.5x forward P/E. Dive into our free research report to see why there are better opportunities than PEP.

IQVIA (IQV)

Trailing 12-Month GAAP Operating Margin: 13.8%

Created from the 2016 merger of Quintiles (a clinical research organization) and IMS Health (a healthcare data specialist), IQVIA (NYSE: IQV) provides clinical research services, data analytics, and technology solutions to help pharmaceutical companies develop and market medications more effectively.

Why Are We Hesitant About IQV?

1. The company has faced growth challenges as its 2.8% annual revenue increases over the last two years fell short of other healthcare companies
2. Constant currency revenue growth has disappointed over the past two years and shows demand was soft
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 3.6 percentage points

IQVIA is trading at $165.60 per share, or 13.1x forward P/E. If you’re considering IQV for your portfolio, see our FREE research report to learn more.

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