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.

Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.

Restaurant Brands (QSR)

Trailing 12-Month GAAP Operating Margin: 26.3%

Formed through a strategic merger, Restaurant Brands International (NYSE: QSR) is a multinational corporation that owns three iconic fast-food chains: Burger King, Tim Hortons, and Popeyes.

Why Does QSR Worry Us?

1. Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 3.6 percentage points
2. 3.3 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
3. 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

Restaurant Brands’s stock price of $69.14 implies a valuation ratio of 18.3x forward P/E. To fully understand why you should be careful with QSR, check out our full research report (it’s free).

Janus (JBI)

Trailing 12-Month GAAP Operating Margin: 12.7%

Standing out with its digital keyless entry into self-storage room technology, Janus (NYSE: JBI) is a provider of easily accessible self-storage solutions.

Why Are We Cautious About JBI?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Forecasted revenue decline of 4.9% for the upcoming 12 months implies demand will fall even further
3. Sales were less profitable over the last two years as its earnings per share fell by 24.1% annually, worse than its revenue declines

Janus is trading at $8.71 per share, or 6.5x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than JBI.

Knowles (KN)

Trailing 12-Month GAAP Operating Margin: 9.8%

With roots dating back to 1946 and a focus on components that must perform flawlessly in critical situations, Knowles (NYSE: KN) designs and manufactures specialized electronic components like high-performance capacitors, microphones, and speakers for medical technology, defense, and industrial applications.

Why Do We Avoid KN?

1. Annual sales declines of 6.2% for the past four years show its products and services struggled to connect with the market during this cycle
2. Forecasted revenue decline of 7.2% for the upcoming 12 months implies demand will fall even further
3. Earnings per share have dipped by 1.4% annually over the past five years, which is concerning because stock prices follow EPS over the long term

At $17.75 per share, Knowles trades at 16x forward P/E. Read our free research report to see why you should think twice about including KN in your portfolio.

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