3 Profitable Stocks Facing Headwinds

Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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 to avoid and some better opportunities instead.

Northwest Pipe (NWPX)

Trailing 12-Month GAAP Operating Margin: 9.8%

Playing a large role in the Integrated Pipeline (IPL) project in Texas to deliver ~350 million gallons of water per day, Northwest Pipe (NASDAQ:NWPX) is a manufacturer of pipeline systems for water infrastructure.

Why Do We Pass on NWPX?

1. Muted 3.7% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
2. Incremental sales over the last two years were much less profitable as its earnings per share fell by 2.9% annually while its revenue grew
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.8 percentage points

Northwest Pipe is trading at $42.34 per share, or 12.3x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than NWPX.

Smith & Wesson (SWBI)

Trailing 12-Month GAAP Operating Margin: 7.3%

With a history dating back to 1852, Smith & Wesson (NASDAQ:SWBI) is a firearms manufacturer known for its handguns and rifles.

Why Do We Avoid SWBI?

1. Products and services fail to spark excitement with consumers, as seen in its flat sales over the last five years
2. Cash burn makes us question whether it can achieve sustainable long-term growth
3. Diminishing returns on capital suggest its earlier profit pools are drying up

At $9.52 per share, Smith & Wesson trades at 17x forward price-to-earnings. Read our free research report to see why you should think twice about including SWBI in your portfolio.

Darden (DRI)

Trailing 12-Month GAAP Operating Margin: 11.7%

Founded in 1968 as Red Lobster, Darden (NYSE:DRI) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.

Why Is DRI Not Exciting?

1. Sizable revenue base leads to growth challenges as its 5.7% annual revenue increases over the last six years fell short of other restaurant companies
2. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
3. Gross margin of 21.3% is below its competitors, leaving less money for marketing and promotions

Darden’s stock price of $200.50 implies a valuation ratio of 19.5x forward price-to-earnings. If you’re considering DRI for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.