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 to steer clear of and a few better alternatives.

United Rentals (URI)

Trailing 12-Month GAAP Operating Margin: 25.1%

Owning the largest rental fleet in the world, United Rentals (NYSE: URI) provides equipment rental and related services to construction, industrial, and infrastructure industries.

Why Are We Hesitant About URI?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Earnings per share lagged its peers over the last two years as they only grew by 4.1% annually
3. Free cash flow margin shrank by 5.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

At $839.30 per share, United Rentals trades at 17.8x forward P/E. Read our free research report to see why you should think twice about including URI in your portfolio.

Rogers (ROG)

Trailing 12-Month GAAP Operating Margin: 5.1%

With roots dating back to 1832, making it one of America's oldest continuously operating companies, Rogers (NYSE: ROG) designs and manufactures specialized engineered materials and components used in electric vehicles, telecommunications, renewable energy, and other high-performance applications.

Why Should You Dump ROG?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 7% annually over the last two years
2. Sales over the last five years were less profitable as its earnings per share fell by 15.7% annually while its revenue was flat
3. Free cash flow margin shrank by 5.4 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Rogers is trading at $92.05 per share, or 29.5x forward P/E. To fully understand why you should be careful with ROG, check out our full research report (it’s free for active Edge members).

Select Medical (SEM)

Trailing 12-Month GAAP Operating Margin: 5.5%

With a nationwide network spanning 46 states and over 2,700 healthcare facilities, Select Medical (NYSE: SEM) operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers across the United States.

Why Do We Steer Clear of SEM?

1. Flat admissions over the past two years suggest it might have to lower prices to accelerate growth
2. Earnings per share fell by 11.7% annually over the last five years while its revenue was flat, showing each sale was less profitable
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Select Medical’s stock price of $14.83 implies a valuation ratio of 12.3x forward P/E. Dive into our free research report to see why there are better opportunities than SEM.

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