Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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

Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. That said, here are three profitable companies that don’t make the cut and some better opportunities instead.

IPG Photonics (IPGP)

Trailing 12-Month GAAP Operating Margin: 1.3%

Both a designer and manufacturer of its products, IPG Photonics (NASDAQ: IPGP) is a provider of high-performance fiber lasers used for cutting, welding, and processing raw materials.

Why Do We Avoid IPGP?

1. Annual sales declines of 3.5% for the past five years show its products and services struggled to connect with the market during this cycle
2. Historical operating margin losses have deepened over the last five years, hinting at increased competitive pressures and an inefficient cost structure
3. Free cash flow margin dropped by 18.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up

IPG Photonics’s stock price of $124.62 implies a valuation ratio of 67.7x forward P/E. Read our free research report to see why you should think twice about including IPGP in your portfolio.

Kennametal (KMT)

Trailing 12-Month GAAP Operating Margin: 8.2%

Involved in manufacturing hard tips of anti-tank projectiles in World War II, Kennametal (NYSE: KMT) is a provider of industrial materials and tools for various sectors.

Why Do We Pass on KMT?

1. Annual sales declines of 1.1% for the past two years show its products and services struggled to connect with the market during this cycle
2. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
3. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 1.9% annually

At $39.10 per share, Kennametal trades at 13.5x forward P/E. If you’re considering KMT for your portfolio, see our FREE research report to learn more.

WEX (WEX)

Trailing 12-Month GAAP Operating Margin: 24.9%

Originally founded in 1983 as Wright Express to serve the fleet card market, WEX (NYSE: WEX) provides payment processing and business solutions across fleet management, employee benefits, and corporate payments sectors.

Why Does WEX Give Us Pause?

1. Muted 2.2% annual revenue growth over the last two years shows its demand lagged behind its financials peers
2. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.5% annually

WEX is trading at $159.51 per share, or 8.9x forward P/E. Check out our free in-depth research report to learn more about why WEX doesn’t pass our bar.

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