While profitability is essential, it doesn’t guarantee long-term success. Some companies that rest on their margins will lose ground as competition intensifies - as Jeff Bezos said, "Your margin is my opportunity".

A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.

Shutterstock (SSTK)

Trailing 12-Month GAAP Operating Margin: 7.6%

Originally featuring a library that included many of founder Jon Oringer’s photos, Shutterstock (NYSE: SSTK) is now a digital platform where customers can license and use hundreds of millions of pieces of content.

Why Should You Dump SSTK?

1. Customer spending has dipped by 73.7% on average as it focused on growing its requests
2. Sales are projected to tank by 10% over the next 12 months as demand evaporates
3. Flat earnings per share over the last three years lagged its peers

Shutterstock’s stock price of $17.82 implies a valuation ratio of 3x forward EV/EBITDA. If you’re considering SSTK for your portfolio, see our FREE research report to learn more.

Starbucks (SBUX)

Trailing 12-Month GAAP Operating Margin: 7.2%

Started by three friends in Seattle’s historic Pike Place Market, Starbucks (NASDAQ: SBUX) is a globally-renowned coffeehouse chain that offers a wide selection of high-quality coffee, beverages, and food items.

Why Do We Pass on SBUX?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
2. Estimated sales growth of 2.9% for the next 12 months implies demand will slow from its six-year trend
3. Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 6.8 percentage points

Starbucks is trading at $98.74 per share, or 39.6x forward P/E. Read our free research report to see why you should think twice about including SBUX in your portfolio.

Royal Caribbean (RCL)

Trailing 12-Month GAAP Operating Margin: 27.4%

Established in 1968, Royal Caribbean Cruises (NYSE: RCL) is a global cruise vacation company renowned for its innovative and exciting cruise experiences.

Why Is RCL Risky?

1. Annual sales growth of 13.6% over the last two years lagged behind its consumer discretionary peers as its large revenue base made it difficult to generate incremental demand
2. Poor free cash flow margin of 9.4% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. Underwhelming 4.7% return on capital reflects management’s difficulties in finding profitable growth opportunities

At $282.55 per share, Royal Caribbean trades at 16.2x forward P/E. Dive into our free research report to see why there are better opportunities than RCL.

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