Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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

Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. Keeping that in mind, here are three profitable companies that don’t make the cut and some better opportunities instead.

Semtech (SMTC)

Trailing 12-Month GAAP Operating Margin: 5.9%

A public company since the late 1960s, Semtech (NASDAQ: SMTC) is a provider of analog and mixed-signal semiconductors used for Internet of Things systems and cloud connectivity.

Why Is SMTC Risky?

1. Mounting operating losses demonstrate the tradeoff between growth and profitability
2. Low free cash flow margin of 6.5% declined over the last five years as its investments ramped, giving it little breathing room
3. Push for growth has led to negative returns on capital, signaling value destruction, and its falling returns suggest its earlier profit pools are drying up

Semtech’s stock price of $67.79 implies a valuation ratio of 37.7x forward P/E. Read our free research report to see why you should think twice about including SMTC in your portfolio.

GXO Logistics (GXO)

Trailing 12-Month GAAP Operating Margin: 1.7%

With notable customers such as Nike and Apple, GXO (NYSE: GXO) manages outsourced supply chains and warehousing for various companies.

Why Does GXO Give Us Pause?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 2.2% annually
3. High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $55.46 per share, GXO Logistics trades at 19.3x forward P/E. Check out our free in-depth research report to learn more about why GXO doesn’t pass our bar.

Ibotta (IBTA)

Trailing 12-Month GAAP Operating Margin: 8.7%

Originally launched as a way to make grocery shopping more rewarding for budget-conscious consumers, Ibotta (NYSE: IBTA) is a mobile shopping app that allows consumers to earn cash back on everyday purchases by completing tasks and submitting receipts.

Why Does IBTA Worry Us?

1. Smaller revenue base of $367.6 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
2. Estimated sales decline of 10.9% for the next 12 months implies a challenging demand environment

Ibotta is trading at $34.32 per share, or 42.3x forward P/E. Dive into our free research report to see why there are better opportunities than IBTA.

Stocks We Like More

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