Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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

Dollar General (DG)

Trailing 12-Month GAAP Operating Margin: 4.3%

Appealing to the budget-conscious consumer, Dollar General (NYSE: DG) is a discount retailer that sells a wide range of household essentials, groceries, apparel/beauty products, and seasonal merchandise.

Why Does DG Give Us Pause?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Gross margin of 29.9% is below its competitors, leaving less money for marketing and promotions
3. High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $99.23 per share, Dollar General trades at 15.4x forward P/E. Dive into our free research report to see why there are better opportunities than DG.

Brady (BRC)

Trailing 12-Month GAAP Operating Margin: 17.1%

Founded in 1914 and evolving through more than a century of industrial innovation, Brady (NYSE: BRC) manufactures and supplies identification solutions and workplace safety products that help companies identify and protect their premises, products, and people.

Why Do We Think Twice About BRC?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Subscale operations are evident in its revenue base of $1.51 billion, meaning it has fewer distribution channels than its larger rivals
3. 5.4 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

Brady is trading at $75.09 per share, or 15.2x forward P/E. Check out our free in-depth research report to learn more about why BRC doesn’t pass our bar.

Insight Enterprises (NSIT)

Trailing 12-Month GAAP Operating Margin: 3.7%

With over 35 years of IT expertise and partnerships with more than 8,000 technology providers, Insight Enterprises (NASDAQ: NSIT) provides end-to-end digital transformation solutions that help businesses modernize their IT infrastructure and maximize the value of technology.

Why Do We Steer Clear of NSIT?

1. Sales stagnated over the last five years and signal the need for new growth strategies
2. Projected sales for the next 12 months are flat and suggest demand will be subdued
3. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 1.9% annually

Insight Enterprises’s stock price of $97.95 implies a valuation ratio of 9.7x forward P/E. To fully understand why you should be careful with NSIT, check out our full research report (it’s free for active Edge members).

Stocks We Like More

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