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".

Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. That said, here are three profitable companies to steer clear of and a few better alternatives.

Mister Car Wash (MCW)

Trailing 12-Month GAAP Operating Margin: 18.6%

Formerly known as Hotshine Holdings, Mister Car Wash (NYSE: MCW) offers car washes across the United States through its conveyorized service.

Why Do We Steer Clear of MCW?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores
2. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

At $6.45 per share, Mister Car Wash trades at 14.2x forward P/E. Read our free research report to see why you should think twice about including MCW in your portfolio.

Chemed (CHE)

Trailing 12-Month GAAP Operating Margin: 15.6%

With a unique business model combining end-of-life care and household services, Chemed (NYSE: CHE) operates two distinct businesses: VITAS, which provides hospice care for terminally ill patients, and Roto-Rooter, which offers plumbing and water restoration services.

Why Does CHE Fall Short?

1. Sales trends were unexciting over the last five years as its 4.6% annual growth was below the typical healthcare company
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.9 percentage points
3. Eroding returns on capital suggest its historical profit centers are aging

Chemed’s stock price of $473.18 implies a valuation ratio of 18.3x forward P/E. Check out our free in-depth research report to learn more about why CHE doesn’t pass our bar.

SS&C (SSNC)

Trailing 12-Month GAAP Operating Margin: 23%

Founded in 1986 as a bridge between technology and financial services, SS&C Technologies (NASDAQ: SSNC) provides software and software-enabled services that help financial firms and healthcare organizations automate complex business processes.

Why Are We Cautious About SSNC?

1. Annual revenue growth of 4.9% over the last five years was below our standards for the business services sector
2. Free cash flow margin shrank by 3 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

SS&C is trading at $82.14 per share, or 13.8x forward P/E. To fully understand why you should be careful with SSNC, check out our full research report (it’s free).

High-Quality Stocks for All Market Conditions

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

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