1 Profitable Stock with Solid Fundamentals and 2 We Avoid

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.

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 is one profitable company that balances growth and profitability and two best left off your watchlist.

Two Stocks to Sell:

Petco (WOOF)

Trailing 12-Month GAAP Operating Margin: 1.3%

Historically known for its window displays of pets for sale or adoption, Petco (NASDAQ:WOOF) is a specialty retailer of pet food and supplies as well as a provider of services such as wellness checks and grooming.

Why Do We Think WOOF Will Underperform?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Earnings per share have contracted by 33.8% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
3. 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

Petco is trading at $3.52 per share, or 18.8x forward P/E. Dive into our free research report to see why there are better opportunities than WOOF.

Root (ROOT)

Trailing 12-Month GAAP Operating Margin: 8.8%

Pioneering a data-driven approach that rewards good driving habits, Root (NASDAQ:ROOT) is a technology-driven auto insurance company that uses mobile apps to acquire customers and data science to price policies based on individual driving behavior.

Why Does ROOT Give Us Pause?

1. Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 158% annually over the last five years
2. Negative return on equity shows management lost money while trying to expand the business

At $95.60 per share, Root trades at 4.6x forward P/B. Check out our free in-depth research report to learn more about why ROOT doesn’t pass our bar.

One Stock to Watch:

Dynatrace (DT)

Trailing 12-Month GAAP Operating Margin: 11.2%

With its platform processing over 30 trillion pieces of IT performance data daily, Dynatrace (NYSE:DT) provides an AI-powered platform that helps organizations monitor, secure, and optimize their applications and IT infrastructure across cloud environments.

Why Are We Fans of DT?

1. Winning new contracts that can potentially increase in value as its billings growth has averaged 18.9% over the last year
2. Software is difficult to replicate at scale and results in a premier gross margin of 81.9%
3. Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends

Dynatrace’s stock price of $48.44 implies a valuation ratio of 7.2x forward price-to-sales. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.

High-Quality Stocks for All Market Conditions

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking out our Top 9 Market-Beating Stocks. 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

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.