Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.

Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. That said, here are three profitable companies that don’t make the cut and some better opportunities instead.

Newmark (NMRK)

Trailing 12-Month GAAP Operating Margin: 5.8%

Founded in 1929, Newmark (NASDAQ: NMRK) provides commercial real estate services, including leasing advisory, global corporate services, investment sales and capital markets, property and facilities management, valuation and advisory, and consulting.

Why Do We Steer Clear of NMRK?

1. Muted 11.6% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
2. Low free cash flow margin of 1.7% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Rising returns on capital show management is making relatively better investments

Newmark is trading at $14.24 per share, or 7.6x forward P/E. Read our free research report to see why you should think twice about including NMRK in your portfolio.

D.R. Horton (DHI)

Trailing 12-Month GAAP Operating Margin: 12.3%

One of the largest homebuilding companies in the U.S., D.R. Horton (NYSE: DHI) builds a variety of new construction homes across multiple markets.

Why Should You Dump DHI?

1. Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 13.7% declines over the past two years
2. Earnings per share have dipped by 11% annually over the past two years, which is concerning because stock prices follow EPS over the long term
3. Eroding returns on capital suggest its historical profit centers are aging

At $147.18 per share, D.R. Horton trades at 13.8x forward P/E. If you’re considering DHI for your portfolio, see our FREE research report to learn more.

Repligen (RGEN)

Trailing 12-Month GAAP Operating Margin: 7.5%

With over 13 strategic acquisitions since 2012 to build its comprehensive bioprocessing portfolio, Repligen (NASDAQ: RGEN) develops and manufactures specialized technologies that improve the efficiency and flexibility of biological drug manufacturing processes.

Why Is RGEN Risky?

1. Revenue base of $738.3 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
2. Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 18.3 percentage points
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

Repligen’s stock price of $132.38 implies a valuation ratio of 61.1x forward P/E. Check out our free in-depth research report to learn more about why RGEN doesn’t pass our bar.

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