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. That said, here are three profitable companies that don’t make the cut and some better opportunities instead.

Arhaus (ARHS)

Trailing 12-Month GAAP Operating Margin: 5.8%

With an aesthetic that features natural materials such as reclaimed wood, Arhaus (NASDAQ: ARHS) is a high-end furniture retailer that sells everything from sofas to rugs to bookcases.

Why Does ARHS Fall Short?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Revenue base of $1.29 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 5 percentage points

At $9.55 per share, Arhaus trades at 19.1x forward P/E. To fully understand why you should be careful with ARHS, check out our full research report (it’s free).

UniFirst (UNF)

Trailing 12-Month GAAP Operating Margin: 7.7%

With a fleet of trucks making weekly deliveries to over 300,000 customer locations, UniFirst (NYSE: UNF) provides, rents, cleans, and maintains workplace uniforms and protective clothing for businesses across various industries.

Why Are We Cautious About UNF?

1. Estimated sales growth of 1% for the next 12 months implies demand will slow from its two-year trend
2. Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
3. Underwhelming 7.4% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its shrinking returns suggest its past profit sources are losing steam

UniFirst’s stock price of $171.87 implies a valuation ratio of 20.4x forward P/E. Check out our free in-depth research report to learn more about why UNF doesn’t pass our bar.

Allegion (ALLE)

Trailing 12-Month GAAP Operating Margin: 21%

Allegion plc (NYSE: ALLE) is a provider of security products and solutions that keep people and assets safe and secure in various environments.

Why Are We Hesitant About ALLE?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. 2.7 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. Waning returns on capital imply its previous profit engines are losing steam

Allegion is trading at $165.40 per share, or 20.4x forward P/E. If you’re considering ALLE for your portfolio, see our FREE research report to learn more.

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