3 Profitable Stocks We Find Risky

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".

A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. That said, here are three profitable companies to steer clear of and a few better alternatives.

DocuSign (DOCU)

Trailing 12-Month GAAP Operating Margin: 8.6%

Creating the digital equivalent of "sign on the dotted line" for over a billion users worldwide, DocuSign (NASDAQ:DOCU) provides an agreement management platform that enables businesses to electronically prepare, sign, and manage documents and contracts.

Why Is DOCU Not Exciting?

1. Underwhelming ARR growth of 8.4% over the last year suggests the company faced challenges in acquiring and retaining long-term customers
2. Estimated sales growth of 6.7% for the next 12 months is soft and implies weaker demand
3. Operating margin improvement of 3.5 percentage points over the last year demonstrates its ability to scale efficiently

DocuSign’s stock price of $59.73 implies a valuation ratio of 3.8x forward price-to-sales. Dive into our free research report to see why there are better opportunities than DOCU.

Cognex (CGNX)

Trailing 12-Month GAAP Operating Margin: 16.3%

Founded in 1981 when computer vision was in its infancy, Cognex (NASDAQ:CGNX) develops machine vision systems and software that help manufacturers and logistics companies automate quality inspection and tracking of products.

Why Do We Steer Clear of CGNX?

1. Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 12.9 percentage points
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 10.2 percentage points
3. Waning returns on capital imply its previous profit engines are losing steam

At $40.64 per share, Cognex trades at 37.5x forward P/E. Check out our free in-depth research report to learn more about why CGNX doesn’t pass our bar.

PulteGroup (PHM)

Trailing 12-Month GAAP Operating Margin: 19.3%

Having delivered over 850,000 homes since its founding in 1950, PulteGroup (NYSE:PHM) is one of America's largest homebuilders, constructing single-family homes, townhouses, and condominiums for first-time, move-up, and active adult buyers across 46 markets in 25 states.

Why Are We Hesitant About PHM?

1. Backlog has dropped by 8.2% on average over the past two years, suggesting it’s losing orders as competition picks up
2. Forecasted revenue decline of 6.6% for the upcoming 12 months implies demand will fall off a cliff
3. Earnings per share were flat over the last two years and fell short of the peer group average

PulteGroup is trading at $132.80 per share, or 12.5x forward P/E. If you’re considering PHM for your portfolio, see our FREE research report to learn more.

Stocks We Like More

Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.

The names generating the next wave of massive growth are right here in 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 244% over the last five years (as of June 30, 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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.