Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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 two profitable companies that leverage their financial strength to beat the competition and one best left off your watchlist.

One Stock to Sell:

Alarm.com (ALRM)

Trailing 12-Month GAAP Operating Margin: 12.9%

Founded in 2000 as a business unit within MicroStrategy, Alarm.com (NASDAQ: ALRM) is a software-as-a-service platform that enables users to control their security systems and smart home appliances from a single app.

Why Are We Cautious About ALRM?

1. Average billings growth of 7.4% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
2. Estimated sales growth of 3.8% for the next 12 months implies demand will slow from its three-year trend
3. Gross margin of 65.8% is below its competitors, leaving less money to invest in areas like marketing and R&D

Alarm.com is trading at $54.03 per share, or 3.2x forward price-to-sales. To fully understand why you should be careful with ALRM, check out our full research report (it’s free).

Two Stocks to Watch:

Allison Transmission (ALSN)

Trailing 12-Month GAAP Operating Margin: 31.3%

Helping build race cars at one point, Allison Transmission (NYSE: ALSN) offers transmissions to original equipment manufacturers and fleet operators.

Why Are We Fans of ALSN?

1. Superior product capabilities and pricing power result in a best-in-class gross margin of 47.9%
2. Disciplined cost controls and effective management resulted in a strong long-term operating margin of 29.3%, and its profits increased over the last five years as it scaled
3. Strong free cash flow margin of 20.2% enables it to reinvest or return capital consistently

Allison Transmission’s stock price of $87.73 implies a valuation ratio of 12.8x forward EV-to-EBITDA. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

Pure Storage (PSTG)

Trailing 12-Month GAAP Operating Margin: 2.9%

Founded in 2009 as a pioneer in enterprise all-flash storage technology, Pure Storage (NYSE: PSTG) provides all-flash data storage hardware and software that helps organizations manage their data more efficiently across on-premises and cloud environments.

Why Should You Buy PSTG?

1. Ability to secure long-term commitments with customers is evident in its 23.5% average ARR growth over the past two years
2. Incremental sales over the last five years have been highly profitable as its earnings per share increased by 29.5% annually, topping its revenue gains
3. Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its rising cash conversion increases its margin of safety

At $58.45 per share, Pure Storage trades at 32.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking out our Top 9 Market-Beating Stocks. 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-small-cap company Exlservice (+354% 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

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