Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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. Keeping that in mind, here are three profitable companies to avoid and some better opportunities instead.

Bentley Systems (BSY)

Trailing 12-Month GAAP Operating Margin: 24.1%

Pioneering the concept of "digital twins" for infrastructure projects long before it became an industry buzzword, Bentley Systems (NASDAQ: BSY) provides software solutions that help engineers design, build, and operate infrastructure projects across sectors including roads, bridges, utilities, mining, and industrial facilities.

Why Are We Hesitant About BSY?

1. Customers were hesitant to make long-term commitments to its software as its 12.3% average ARR growth over the last year was sluggish
2. Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
3. Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 3.1 percentage points

At $38.12 per share, Bentley Systems trades at 7.6x forward price-to-sales. Check out our free in-depth research report to learn more about why BSY doesn’t pass our bar.

Carriage Services (CSV)

Trailing 12-Month GAAP Operating Margin: 23.5%

Established in 1991, Carriage Services (NYSE: CSV) is a provider of funeral and cemetery services in the United States.

Why Should You Dump CSV?

1. Muted 4.8% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
2. Poor free cash flow margin of 11.7% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Carriage Services is trading at $41.88 per share, or 12.5x forward P/E. Dive into our free research report to see why there are better opportunities than CSV.

Merit Medical Systems (MMSI)

Trailing 12-Month GAAP Operating Margin: 12.2%

Founded in 1987 and now offering over 1,700 patented products across global markets, Merit Medical Systems (NASDAQ: MMSI) manufactures and markets specialized medical devices used in minimally invasive procedures for cardiology, radiology, oncology, critical care, and endoscopy.

Why Does MMSI Give Us Pause?

1. Smaller revenue base of $1.52 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
2. ROIC of 5.1% reflects management’s challenges in identifying attractive investment opportunities

Merit Medical Systems’s stock price of $68.17 implies a valuation ratio of 17.3x forward P/E. Read our free research report to see why you should think twice about including MMSI in your portfolio.

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