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.

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 avoid and some better opportunities instead.

J&J Snack Foods (JJSF)

Trailing 12-Month GAAP Operating Margin: 7%

Best known for its SuperPretzel soft pretzels and ICEE frozen drinks, J&J Snack Foods (NASDAQ: JJSF) produces a range of snacks and beverages and distributes them primarily to supermarket and food service customers.

Why Is JJSF Not Exciting?

1. Subscale operations are evident in its revenue base of $1.6 billion, meaning it has fewer distribution channels than its larger rivals
2. Estimated sales growth of 2.2% for the next 12 months implies demand will slow from its three-year trend
3. Capital intensity has ramped up over the last year as its free cash flow margin decreased by 2.7 percentage points

At $114.73 per share, J&J Snack Foods trades at 21.5x forward P/E. Check out our free in-depth research report to learn more about why JJSF doesn’t pass our bar.

WeightWatchers (WW)

Trailing 12-Month GAAP Operating Margin: 14%

Known by many for its old cable television commercials, WeightWatchers (NASDAQ: WW) is a wellness company offering a range of products and services promoting weight loss and healthy habits.

Why Is WW Risky?

1. Sluggish trends in its members suggest customers aren’t adopting its solutions as quickly as the company hoped
2. Diminishing returns on capital suggest its earlier profit pools are drying up
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

WeightWatchers’s stock price of $33.40 implies a valuation ratio of 28.1x forward EV-to-EBITDA. To fully understand why you should be careful with WW, check out our full research report (it’s free).

Landstar (LSTR)

Trailing 12-Month GAAP Operating Margin: 4.5%

Covering billions of miles throughout North America, Landstar (NASDAQ: LSTR) is a transportation company specializing in freight and last-mile delivery services.

Why Should You Dump LSTR?

1. Annual sales declines of 12.7% for the past two years show its products and services struggled to connect with the market during this cycle
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. Waning returns on capital imply its previous profit engines are losing steam

Landstar is trading at $132.86 per share, or 23.9x forward P/E. Dive into our free research report to see why there are better opportunities than LSTR.

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