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. Keeping that in mind, here are three profitable companies to avoid and some better opportunities instead.
America's Car-Mart (CRMT)
Trailing 12-Month GAAP Operating Margin: 6.8%
With a strong presence in the Southern and Central US, America’s Car-Mart (NASDAQ:CRMT) sells used cars to budget-conscious consumers.
Why Do We Steer Clear of CRMT?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Earnings per share have contracted by 29.1% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
America's Car-Mart’s stock price of $56.04 implies a valuation ratio of 14.4x forward P/E. To fully understand why you should be careful with CRMT, check out our full research report (it’s free).
Bath and Body Works (BBWI)
Trailing 12-Month GAAP Operating Margin: 17.5%
Spun off from L Brands in 2020, Bath & Body Works (NYSE:BBWI) is a personal care and home fragrance retailer where consumers can find specialty shower gels, scented candles for the home, and lotions.
Why Are We Wary of BBWI?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Estimated sales growth of 2.2% for the next 12 months implies demand will slow from its six-year trend
- Earnings growth underperformed the sector average over the last six years as its EPS grew by just 8.6% annually
Bath and Body Works is trading at $29.32 per share, or 8.2x forward P/E. Check out our free in-depth research report to learn more about why BBWI doesn’t pass our bar.
Penumbra (PEN)
Trailing 12-Month GAAP Operating Margin: 3%
Founded in 2004 to address challenging medical conditions with significant unmet needs, Penumbra (NYSE:PEN) develops and manufactures innovative medical devices for treating vascular diseases and providing immersive healthcare rehabilitation solutions.
Why Does PEN Give Us Pause?
- Revenue base of $1.24 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Low free cash flow margin of 3% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Negative returns on capital show that some of its growth strategies have backfired
At $258.39 per share, Penumbra trades at 64x forward P/E. Read our free research report to see why you should think twice about including PEN in your portfolio.
Stocks We Like More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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