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".

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.

Thermon (THR)

Trailing 12-Month GAAP Operating Margin: 16.4%

Creating the first packaged tracing systems, Thermon (NYSE: THR) is a leading provider of engineered industrial process heating solutions for process industries.

Why Are We Cautious About THR?

1. Annual revenue growth of 3.5% over the last two years was below our standards for the industrials sector
2. Estimated sales growth of 4% for the next 12 months is soft and implies weaker demand
3. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 5.6% annually

Thermon is trading at $32.76 per share, or 9.4x forward EV-to-EBITDA. If you’re considering THR for your portfolio, see our FREE research report to learn more.

Kratos (KTOS)

Trailing 12-Month GAAP Operating Margin: 1.6%

Established with a commitment to supporting national security, Kratos (NASDAQ: KTOS) is a provider of advanced engineering, technology, and security solutions tailored for critical national security applications.

Why Does KTOS Worry Us?

1. Free cash flow margin dropped by 9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
2. ROIC of 3.2% reflects management’s challenges in identifying attractive investment opportunities, and its decreasing returns suggest its historical profit centers are aging
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

Kratos’s stock price of $67.17 implies a valuation ratio of 95.3x forward P/E. Read our free research report to see why you should think twice about including KTOS in your portfolio.

AT&T (T)

Trailing 12-Month GAAP Operating Margin: 19%

Founded by Alexander Graham Bell, AT&T (NYSE: T) is a multinational telecomm conglomerate providing a range of communications and internet services.

Why Are We Out on T?

1. Annual sales declines of 5.6% for the past five years show its products and services struggled to connect with the market
2. Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 8.5% annually, worse than its revenue
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

At $25.47 per share, AT&T trades at 11.8x forward P/E. To fully understand why you should be careful with T, check out our full research report (it’s free for active Edge members).

High-Quality Stocks for All Market Conditions

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.