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".
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 steer clear of and a few better alternatives.
Manhattan Associates (MANH)
Trailing 12-Month GAAP Operating Margin: 25.4%
Boasting major consumer staples and pharmaceutical companies as clients, Manhattan Associates (NASDAQ: MANH) offers a software-as-service platform that helps customers manage their supply chains.
Why Is MANH Risky?
- Products, pricing, or go-to-market strategy may need some adjustments as its 3.6% average billings growth over the last year was weak
- Estimated sales growth of 1.9% for the next 12 months implies demand will slow from its three-year trend
- Gross margin of 55.6% reflects its high servicing costs
Manhattan Associates’s stock price of $192.88 implies a valuation ratio of 11.1x forward price-to-sales. Check out our free in-depth research report to learn more about why MANH doesn’t pass our bar.
Royal Caribbean (RCL)
Trailing 12-Month GAAP Operating Margin: 25.7%
Established in 1968, Royal Caribbean Cruises (NYSE: RCL) is a global cruise vacation company renowned for its innovative and exciting cruise experiences.
Why Do We Think Twice About RCL?
- Scale is a double-edged sword because it limits the company's growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 9.7% for the last five years
- Projected 7.1 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
- ROIC of -0.2% reflects management’s challenges in identifying attractive investment opportunities
At $264 per share, Royal Caribbean trades at 17.3x forward P/E. To fully understand why you should be careful with RCL, check out our full research report (it’s free).
Watsco (WSO)
Trailing 12-Month GAAP Operating Margin: 10.1%
Originally a manufacturing company, Watsco (NYSE: WSO) today only distributes air conditioning, heating, and refrigeration equipment, as well as related parts and supplies.
Why Are We Hesitant About WSO?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Revenue growth over the past two years was nullified by the company’s new share issuances as its earnings per share fell by 4.1% annually
- Eroding returns on capital suggest its historical profit centers are aging
Watsco is trading at $443.13 per share, or 29.7x forward P/E. Dive into our free research report to see why there are better opportunities than WSO.
High-Quality Stocks for All Market Conditions
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum 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).
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