Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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. Keeping that in mind, here are three profitable companies that don’t make the cut and some better opportunities instead.
Alarm.com (ALRM)
Trailing 12-Month GAAP Operating Margin: 12.9%
Processing over 325 billion data points annually from more than 150 million connected devices, Alarm.com (NASDAQ: ALRM) provides cloud-based platforms that enable residential and commercial property owners to remotely monitor and control their security, video, energy, and other connected devices.
Why Do We Avoid ALRM?
- Products, pricing, or go-to-market strategy may need some adjustments as its 7.4% average billings growth over the last year was weak
- Estimated sales growth of 3.7% for the next 12 months implies demand will slow from its two-year trend
- Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
At $53.12 per share, Alarm.com trades at 3.2x forward price-to-sales. Read our free research report to see why you should think twice about including ALRM in your portfolio.
ESAB (ESAB)
Trailing 12-Month GAAP Operating Margin: 15.9%
Having played a significant role in the construction of the iconic Sydney Opera House, ESAB (NYSE: ESAB) manufactures and sells welding and cutting equipment for numerous industries.
Why Is ESAB Risky?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Earnings per share lagged its peers over the last four years as they only grew by 3.6% annually
- Free cash flow margin dropped by 4.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
ESAB is trading at $111.74 per share, or 19.3x forward P/E. Dive into our free research report to see why there are better opportunities than ESAB.
Dover (DOV)
Trailing 12-Month GAAP Operating Margin: 16.3%
A company that manufactured critical equipment for the United States military during World War II, Dover (NYSE: DOV) manufactures engineered components and specialized equipment for numerous industries.
Why Do We Think DOV Will Underperform?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 3.2% annually
- Eroding returns on capital suggest its historical profit centers are aging
Dover’s stock price of $166.83 implies a valuation ratio of 17x forward P/E. If you’re considering DOV for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check 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-small-cap company Exlservice (+354% 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
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.
