Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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 to avoid and some better opportunities instead.
The ONE Group (STKS)
Trailing 12-Month GAAP Operating Margin: 6.1%
Doubling as a hospitality services provider for hotels and resorts, The One Group Hospitality (NASDAQ:STKS) is an upscale restaurant company that operates STK Steakhouse and Kona Grill.
Why Are We Out on STKS?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- Earnings per share have dipped by 17.6% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $3.97 per share, The ONE Group trades at 1.1x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than STKS.
Novanta (NOVT)
Trailing 12-Month GAAP Operating Margin: 13.5%
Originally a pioneer in the laser scanning industry during the late 1960s, Novanta (NASDAQ:NOVT) offers medicine and manufacturing technology to the medical, life sciences, and manufacturing industries.
Why Does NOVT Fall Short?
- 4.2% annual revenue growth over the last two years was slower than its industrials peers
- Flat earnings per share over the last two years lagged its peers
- Free cash flow margin dropped by 7.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Novanta’s stock price of $123.82 implies a valuation ratio of 25x forward EV-to-EBITDA. If you’re considering NOVT for your portfolio, see our FREE research report to learn more.
AT&T (T)
Trailing 12-Month GAAP Operating Margin: 15.4%
Founded by Alexander Graham Bell, AT&T (NYSE:T) is a multinational telecomm conglomerate providing a range of communications and internet services.
Why Should You Sell T?
- Products and services have few die-hard fans as sales have declined by 7.3% annually over the last five years
- Sales were less profitable over the last five years as its earnings per share fell by 9% annually, worse than its revenue declines
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
AT&T is trading at $28.26 per share, or 13.6x forward P/E. To fully understand why you should be careful with T, check out our full research report (it’s free).
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 5 Growth Stocks for this month. 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-micro-cap company Tecnoglass (+1,754% 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.