Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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

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 avoid and some better opportunities instead.

Alarm.com (ALRM)

Trailing 12-Month GAAP Operating Margin: 13.2%

Processing over 325 billion data points annually from more than 150 million connected devices, Alarm.com (NASDAQ: ALRM) provides cloud-based platforms that enable residential and commercial property owners to remotely monitor and control their security, video, energy, and other connected devices.

Why Do We Think ALRM Will Underperform?

1. Average billings growth of 7.2% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
2. Estimated sales growth of 5% for the next 12 months implies demand will slow from its two-year trend
3. Operating margin expanded by 1.7 percentage points over the last year as it scaled and became more efficient

Alarm.com’s stock price of $44.39 implies a valuation ratio of 2.4x forward price-to-sales. Check out our free in-depth research report to learn more about why ALRM doesn’t pass our bar.

America's Car-Mart (CRMT)

Trailing 12-Month GAAP Operating Margin: 1.8%

With a strong presence in the Southern and Central US, America’s Car-Mart (NASDAQ: CRMT) sells used cars to budget-conscious consumers.

Why Do We Steer Clear of CRMT?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Earnings per share fell by 31.2% annually over the last three years while its revenue was flat, partly because it diluted shareholders

At $12.16 per share, America's Car-Mart trades at 21.4x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than CRMT.

Movado (MOV)

Trailing 12-Month GAAP Operating Margin: 4.7%

With its watches displayed in 20 museums around the world, Movado (NYSE: MOV) is a watchmaking company with a portfolio of watch brands and accessories.

Why Is MOV Risky?

1. Annual revenue growth of 5.8% over the last five years was below our standards for the consumer discretionary sector
2. Low free cash flow margin of 3.3% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Movado is trading at $27.08 per share, or 18.1x forward P/E. If you’re considering MOV for your portfolio, see our FREE research report to learn more.

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