3 Profitable Stocks with Mounting Challenges

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".

Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.

Ralph Lauren (RL)

Trailing 12-Month GAAP Operating Margin: 12.7%

Originally founded as a necktie company, Ralph Lauren (NYSE:RL) is an iconic American fashion brand known for its classic and sophisticated style.

Why Is RL Not Exciting?

1. Constant currency revenue growth has disappointed over the past two years and shows demand was soft
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.8%
3. Projected 2.6 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position

At $218.90 per share, Ralph Lauren trades at 16.9x forward price-to-earnings. Read our free research report to see why you should think twice about including RL in your portfolio.

Zurn Elkay (ZWS)

Trailing 12-Month GAAP Operating Margin: 16.1%

Claiming to have saved more than 30 billion gallons of water, Zurn Elkay (NYSE:ZWS) provides water management solutions to various industries.

Why Are We Wary of ZWS?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Estimated sales growth of 3.6% for the next 12 months implies demand will slow from its two-year trend
3. Issuance of new shares over the last five years caused its earnings per share to fall by 8.2% annually, even worse than its revenue declines

Zurn Elkay is trading at $33.86 per share, or 24.9x forward price-to-earnings. If you’re considering ZWS for your portfolio, see our FREE research report to learn more.

Helios (HLIO)

Trailing 12-Month GAAP Operating Margin: 10.2%

Founded on the principle of treating others as one wants to be treated, Helios (NYSE:HLIO) designs, manufactures, and sells motion and electronic control components for various sectors.

Why Do We Think HLIO Will Underperform?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 2.9% annually
3. 6.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

Helios’s stock price of $28.16 implies a valuation ratio of 12.1x forward price-to-earnings. Check out our free in-depth research report to learn more about why HLIO doesn’t pass our bar.

Stocks We Like More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market 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 Axon (+711% five-year return). Find your next big winner with StockStory today for free.