3 Profitable Stocks We Think Twice About

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. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.

Lithia (LAD)

Trailing 12-Month GAAP Operating Margin: 4.5%

With a strong presence in the Western US, Lithia Motors (NYSE:LAD) sells a wide range of vehicles, including new and used cars, trucks, SUVs, and luxury vehicles from various manufacturers.

Why Are We Cautious About LAD?

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. Widely-available products (and therefore stiff competition) result in an inferior gross margin of 15.6% that must be offset through higher volumes
3. 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

At $332.05 per share, Lithia trades at 9.1x forward P/E. To fully understand why you should be careful with LAD, check out our full research report (it’s free).

Calavo (CVGW)

Trailing 12-Month GAAP Operating Margin: 3%

A trailblazer in the avocado industry, Calavo Growers (NASDAQ:CVGW) is a pioneering California-based provider of high-quality avocados and other fresh food products.

Why Are We Out on CVGW?

1. Products have few die-hard fans as sales have declined by 18.3% annually over the last three years
2. Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
3. Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 10%

Calavo’s stock price of $25.92 implies a valuation ratio of 15.9x forward P/E. Check out our free in-depth research report to learn more about why CVGW doesn’t pass our bar.

Regeneron (REGN)

Trailing 12-Month GAAP Operating Margin: 25.9%

Founded by scientists who wanted to build a company where science could thrive, Regeneron Pharmaceuticals (NASDAQ:REGN) develops and commercializes medicines for serious diseases, with key products treating eye conditions, allergic diseases, cancer, and other disorders.

Why Do We Think Twice About REGN?

1. Sizable revenue base leads to growth challenges as its 4.3% annual revenue increases over the last two years fell short of other healthcare companies
2. Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 23.8 percentage points
3. Eroding returns on capital suggest its historical profit centers are aging

Regeneron is trading at $733.37 per share, or 16.6x forward P/E. Read our free research report to see why you should think twice about including REGN in your portfolio.

Stocks We Like More

Check out the high-quality names we’ve flagged in 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 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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.