Even if a company is profitable, it doesn’t always mean it’s a great investment. Some struggle to maintain growth, face looming threats, or fail to reinvest wisely, limiting their future potential.

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

onsemi (ON)

Trailing 12-Month GAAP Operating Margin: 7.4%

Spun out of Motorola in 1999 and built through a series of acquisitions, onsemi (NASDAQ: ON) is a global provider of analog chips specializing in autos, industrial applications, and power management in cloud data centers.

Why Does ON Give Us Pause?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 12.5% annually over the last two years
2. Projected sales decline of 4.5% over the next 12 months indicates demand will continue deteriorating
3. Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 4.3 percentage points

At $51.09 per share, onsemi trades at 19.6x forward P/E. Dive into our free research report to see why there are better opportunities than ON.

Otis (OTIS)

Trailing 12-Month GAAP Operating Margin: 13.1%

Credited with inventing the first hydraulic passenger elevator, Otis Worldwide (NYSE: OTIS) is an elevator and escalator manufacturing, installation and service company.

Why Are We Wary of OTIS?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Projected sales growth of 4.1% for the next 12 months suggests sluggish demand
3. 1.9 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

Otis’s stock price of $87.62 implies a valuation ratio of 20.2x forward P/E. To fully understand why you should be careful with OTIS, check out our full research report (it’s free).

Norfolk Southern (NSC)

Trailing 12-Month GAAP Operating Margin: 41.5%

Starting with a single route from Virginia to North Carolina, Norfolk Southern (NYSE: NSC) is a freight transportation company operating a major railroad network across the eastern United States.

Why Do We Think NSC Will Underperform?

1. Underwhelming unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
2. Earnings per share have contracted by 4.5% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.8 percentage points

Norfolk Southern is trading at $280.79 per share, or 20.9x forward P/E. Dive into our free research report to see why there are better opportunities than NSC.

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