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. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.

Kohl's (KSS)

Trailing 12-Month GAAP Operating Margin: 3.9%

Founded as a corner grocery store in Milwaukee, Wisconsin, Kohl’s (NYSE: KSS) is a department store chain that sells clothing, cosmetics, electronics, and home goods.

Why Is KSS Risky?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Subpar operating margin of 3.4% constrains its ability to invest in process improvements or effectively respond to new competitive threats
3. 5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

Kohl’s stock price of $17.56 implies a valuation ratio of 12.4x forward P/E. If you’re considering KSS for your portfolio, see our FREE research report to learn more.

Mondelez (MDLZ)

Trailing 12-Month GAAP Operating Margin: 9.4%

Founded as Nabisco in 1903, Mondelez (NASDAQ: MDLZ) is a packaged snacks powerhouse best known for its Oreo, Cadbury, Toblerone, Ritz, and Trident brands.

Why Does MDLZ Worry Us?

1. Declining unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
2. Estimated sales growth of 2.5% for the next 12 months implies demand will slow from its three-year trend
3. Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 2% annually

At $59.75 per share, Mondelez trades at 18.8x forward P/E. To fully understand why you should be careful with MDLZ, check out our full research report (it’s free).

Belden (BDC)

Trailing 12-Month GAAP Operating Margin: 11.5%

With its enamel-coated copper wire used in WWI for the Allied forces, Belden (NYSE: BDC) designs, manufactures, and sells electronic components to various industries.

Why Are We Cautious About BDC?

1. Operating margin failed to increase over the last five years, indicating the company couldn’t optimize its expenses
2. Free cash flow margin didn’t grow over the last five years
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Belden is trading at $121.53 per share, or 15x forward P/E. Check out our free in-depth research report to learn more about why BDC doesn’t pass our bar.

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