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.

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 steer clear of and a few better alternatives.

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 Are We Hesitant About JJSF?

1. Modest revenue base of $1.6 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
2. Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
3. Free cash flow margin shrank by 2.7 percentage points over the last year, suggesting the company is consuming more capital to stay competitive

At $81.84 per share, J&J Snack Foods trades at 31.4x forward EV-to-EBITDA. To fully understand why you should be careful with JJSF, check out our full research report (it’s free for active Edge members).

Alamo (ALG)

Trailing 12-Month GAAP Operating Margin: 10.1%

Expanding its markets through acquisitions since its founding, Alamo (NSYE:ALG) designs, manufactures, and services vegetation management and infrastructure maintenance equipment for governmental, industrial, and agricultural use.

Why Does ALG Fall Short?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.3% annually over the last two years
2. Estimated sales growth of 5% for the next 12 months is soft and implies weaker demand
3. Earnings per share have contracted by 5.7% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance

Alamo’s stock price of $166.86 implies a valuation ratio of 14.9x forward P/E. Read our free research report to see why you should think twice about including ALG in your portfolio.

Great Lakes Dredge & Dock (GLDD)

Trailing 12-Month GAAP Operating Margin: 14.7%

Founded as Lydon & Drews dredging company, Great Lakes Dredge & Dock (NASDAQ: GLDD) provides dredging services, land reclamation, and coastal protection projects in the United States and internationally.

Why Does GLDD Worry Us?

1. Sales pipeline suggests its future revenue growth may not meet our standards as its average backlog growth of 4.2% for the past two years was weak
2. Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 16.9%
3. Cash-burning tendencies make us wonder if it can sustainably generate shareholder value

Great Lakes Dredge & Dock is trading at $12.25 per share, or 13.6x forward P/E. Check out our free in-depth research report to learn more about why GLDD doesn’t pass our bar.

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