Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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. That said, here are three profitable companies that don’t make the cut and some better opportunities instead.

Arcos Dorados (ARCO)

Trailing 12-Month GAAP Operating Margin: 6.5%

Translating to “Golden Arches” in Spanish, Arcos Dorados (NYSE: ARCO) is the master franchisee of the McDonald's brand in Latin America and the Caribbean, responsible for its operations and growth in over 20 countries.

Why Does ARCO Give Us Pause?

1. Challenging supply chain dynamics and bad unit economics are reflected in its low gross margin of 13%
2. Subpar operating margin of 6.7% constrains its ability to invest in process improvements or effectively respond to new competitive threats
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.5% for the last two years

Arcos Dorados is trading at $7 per share, or 12.7x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including ARCO in your portfolio.

Altice (ATUS)

Trailing 12-Month GAAP Operating Margin: 16.4%

Based in Long Island City, Altice USA (NYSE: ATUS) is a telecommunications company offering cable, internet, telephone, and television services across the United States.

Why Should You Sell ATUS?

1. Demand for its offerings was relatively low as its number of broadband subscribers has underwhelmed
2. Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $2.41 per share, Altice trades at 0.3x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why ATUS doesn’t pass our bar.

ABM (ABM)

Trailing 12-Month GAAP Operating Margin: 3%

With roots dating back to 1909 as a window washing company, ABM Industries (NYSE: ABM) provides integrated facility management, infrastructure, and mobility solutions across various sectors including commercial, manufacturing, education, and aviation.

Why Does ABM Fall Short?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Performance over the past two years shows its incremental sales were less profitable, as its 1.2% annual earnings per share growth trailed its revenue gains
3. 6.4 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

ABM’s stock price of $45.54 implies a valuation ratio of 11.6x forward P/E. Dive into our free research report to see why there are better opportunities than ABM.

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