Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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 to steer clear of and a few better alternatives.

NXP Semiconductors (NXPI)

Trailing 12-Month GAAP Operating Margin: 25.4%

Spun off from Dutch electronics giant Philips in 2006, NXP Semiconductors (NASDAQ: NXPI) is a designer and manufacturer of chips used in autos, industrial manufacturing, mobile devices, and communications infrastructure.

Why Do We Think Twice About NXPI?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 4.1% annually over the last two years
2. Anticipated sales growth of 5.2% for the next year implies demand will be shaky
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.4 percentage points

NXP Semiconductors’s stock price of $223.29 implies a valuation ratio of 17.8x forward P/E. To fully understand why you should be careful with NXPI, check out our full research report (it’s free).

Caleres (CAL)

Trailing 12-Month GAAP Operating Margin: 4.9%

The owner of Dr. Scholl's, Caleres (NYSE: CAL) is a footwear company offering a range of styles.

Why Is CAL Risky?

1. Sales tumbled by 3.8% annually over the last two years, showing consumer trends are working against its favor
2. Projected sales for the next 12 months are flat and suggest demand will be subdued
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

Caleres is trading at $15.40 per share, or 5x forward P/E. Read our free research report to see why you should think twice about including CAL in your portfolio.

Laureate Education (LAUR)

Trailing 12-Month GAAP Operating Margin: 22.9%

Founded in 1998 by Douglas L. Becker and based in Miami, Laureate Education (NASDAQ: LAUR) is a global network of higher education institutions.

Why Are We Cautious About LAUR?

1. Performance surrounding its enrolled students has lagged its peers
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. ROIC of 7.6% reflects management’s challenges in identifying attractive investment opportunities

At $24.25 per share, Laureate Education trades at 15.5x forward P/E. Check out our free in-depth research report to learn more about why LAUR doesn’t pass our bar.

Stocks We Like More

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