3 Profitable Stocks in Hot Water

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. That said, here are three profitable companies that don’t make the cut and some better opportunities instead.

Olaplex (OLPX)

Trailing 12-Month GAAP Operating Margin: 15.8%

Rising to fame on TikTok because of its “bond building" hair products, Olaplex (NASDAQ:OLPX) offers products and treatments that repair the damage caused by traditional heat and chemical-based styling goods.

Why Are We Hesitant About OLPX?

1. Products have few die-hard fans as sales have declined by 10.9% annually over the last three years
2. Inability to adjust its cost structure while its revenue declined over the last year led to a 7.8 percentage point drop in the company’s operating margin
3. Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable

At $1.35 per share, Olaplex trades at 11.2x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than OLPX.

GMS (GMS)

Trailing 12-Month GAAP Operating Margin: 5.3%

Founded in 1971, GMS (NYSE:GMS) distributes specialty building materials including wallboard, ceilings, and insulation products, to the construction industry.

Why Does GMS Give Us Pause?

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. Projected sales decline of 3.7% for the next 12 months points to a tough demand environment ahead
3. Earnings per share have contracted by 13.3% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance

GMS’s stock price of $73.26 implies a valuation ratio of 9.4x forward price-to-earnings. If you’re considering GMS for your portfolio, see our FREE research report to learn more.

Hewlett Packard Enterprise (HPE)

Trailing 12-Month GAAP Operating Margin: 6.7%

Born from the 2015 split of the iconic Silicon Valley pioneer Hewlett-Packard, Hewlett Packard Enterprise (NYSE:HPE) provides edge-to-cloud technology solutions that help businesses capture, analyze, and act upon their data across hybrid IT environments.

Why Are We Wary of HPE?

1. Annual sales growth of 1.8% over the last five years lagged behind its business services peers as its large revenue base made it difficult to generate incremental demand
2. Issuance of new shares over the last two years caused its earnings per share to fall by 3% annually while its revenue grew
3. ROIC of 2.9% reflects management’s challenges in identifying attractive investment opportunities

Hewlett Packard Enterprise is trading at $16.55 per share, or 7.5x forward price-to-earnings. To fully understand why you should be careful with HPE, check out our full research report (it’s free).

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 5 Growth Stocks for this month. 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 Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.