Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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. Keeping that in mind, here are three profitable companies to avoid and some better opportunities instead.

Alta (ALTG)

Trailing 12-Month GAAP Operating Margin: 1.1%

Founded in 1984, Alta Equipment Group (NYSE: ALTG) is a provider of industrial and construction equipment and services across the Midwest and Northeast United States.

Why Do We Pass on ALTG?

1. Sales trends were unexciting over the last two years as its 5.8% annual growth was below the typical industrials company
2. Cash-burning history makes us doubt the long-term viability of its business model
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

At $4.75 per share, Alta trades at 0.9x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including ALTG in your portfolio.

MDU Resources (MDU)

Trailing 12-Month GAAP Operating Margin: 20.2%

Founded to provide electricity to towns in Minnesota, MDU Resources (NYSE: MDU) provides products and services in the utilities and construction materials industries.

Why Are We Out on MDU?

1. Sales tumbled by 25.9% annually over the last five years, showing market trends are working against its favor during this cycle
2. Earnings per share have contracted by 4.3% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
3. High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens

MDU Resources is trading at $17.06 per share, or 16.6x forward P/E. Check out our free in-depth research report to learn more about why MDU doesn’t pass our bar.

Robert Half (RHI)

Trailing 12-Month GAAP Operating Margin: 4.2%

With roots dating back to 1948 as the first specialized recruiting firm for accounting and finance professionals, Robert Half (NYSE: RHI) provides specialized talent solutions and business consulting services, connecting skilled professionals with companies across various fields.

Why Do We Avoid RHI?

1. Sales tumbled by 1.5% annually over the last five years, showing market trends are working against its favor during this cycle
2. Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
3. Eroding returns on capital suggest its historical profit centers are aging

Robert Half’s stock price of $45.35 implies a valuation ratio of 16.9x forward P/E. Dive into our free research report to see why there are better opportunities than RHI.

Stocks We Like More

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