Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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 is one profitable company that leverages its financial strength to beat the competition and two that may face some trouble.
Two Stocks to Sell:
Toll Brothers (TOL)
Trailing 12-Month GAAP Operating Margin: 17%
Started by two brothers who started by building and selling just one home in Pennsylvania, today Toll Brothers (NYSE: TOL) is a luxury homebuilder across the United States.
Why Are We Cautious About TOL?
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 6.3% declines over the past two years
- Earnings per share have contracted by 1.4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Free cash flow margin shrank by 6.5 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Toll Brothers is trading at $138.83 per share, or 9.8x forward P/E. If you’re considering TOL for your portfolio, see our FREE research report to learn more.
Ares Capital (ARCC)
Trailing 12-Month GAAP Operating Margin: 48.7%
As one of the largest business development companies in the United States with over $20 billion in assets, Ares Capital (NASDAQ: ARCC) is a business development company that provides financing solutions to middle-market companies, primarily through direct loans and equity investments.
Why Do We Pass on ARCC?
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 3.6% annually
Ares Capital’s stock price of $22.28 implies a valuation ratio of 11.1x forward P/E. Check out our free in-depth research report to learn more about why ARCC doesn’t pass our bar.
One Stock to Buy:
DexCom (DXCM)
Trailing 12-Month GAAP Operating Margin: 16%
Founded in 1999 and receiving its first FDA approval in 2006, DexCom (NASDAQ: DXCM) develops and sells continuous glucose monitoring systems that allow people with diabetes to track their blood sugar levels without repeated finger pricks.
Why Will DXCM Outperform?
- Existing business lines can expand without risky acquisitions as its organic revenue growth averaged 17.8% over the past two years
- Earnings growth has massively outpaced its peers over the last five years as its EPS has compounded at 17.5% annually
- Free cash flow margin grew by 8.6 percentage points over the last five years, giving the company more chips to play with
At $76.40 per share, DexCom trades at 32.7x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
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