While profitability is essential, it doesn’t guarantee long-term success. Some companies that rest on their margins will lose ground as competition intensifies - as Jeff Bezos said, "Your margin is my opportunity".

A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. That said, here are three profitable companies to avoid and some better opportunities instead.

Semtech (SMTC)

Trailing 12-Month GAAP Operating Margin: 8.7%

A public company since the late 1960s, Semtech (NASDAQ: SMTC) is a provider of analog and mixed-signal semiconductors used for Internet of Things systems and cloud connectivity.

Why Do We Avoid SMTC?

1. Growth came at the expense of profits over the last five years as its operating margin losses have increased
2. 6.8 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
3. Push for growth has led to negative returns on capital, signaling value destruction, and its shrinking returns suggest its past profit sources are losing steam

Semtech is trading at $45.62 per share, or 26.3x forward P/E. If you’re considering SMTC for your portfolio, see our FREE research report to learn more.

The New York Times (NYT)

Trailing 12-Month GAAP Operating Margin: 13.8%

Founded in 1851, The New York Times (NYSE: NYT) is an American media organization known for its influential newspaper and expansive digital journalism platforms.

Why Does NYT Give Us Pause?

1. Sluggish trends in its subscribers suggest customers aren’t adopting its solutions as quickly as the company hoped
2. Anticipated sales growth of 6.5% for the next year implies demand will be shaky
3. Eroding returns on capital suggest its historical profit centers are aging

The New York Times’s stock price of $55.87 implies a valuation ratio of 26x forward P/E. To fully understand why you should be careful with NYT, check out our full research report (it’s free).

Portillo's (PTLO)

Trailing 12-Month GAAP Operating Margin: 8.1%

Begun as a Chicago hot dog stand in 1963, Portillo’s (NASDAQ: PTLO) is a casual restaurant chain that serves Chicago-style hot dogs and beef sandwiches as well as fries and shakes.

Why Is PTLO Not Exciting?

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. Poor free cash flow margin of -0.2% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

At $11.63 per share, Portillo's trades at 31.6x forward P/E. Check out our free in-depth research report to learn more about why PTLO 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 5 Strong Momentum Stocks for this week. 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 Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today