3 Profitable Stocks in the Doghouse

Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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

Lattice Semiconductor (LSCC)

Trailing 12-Month GAAP Operating Margin: 6.8%

A global leader in its category, Lattice Semiconductor (NASDAQ:LSCC) is a semiconductor designer specializing in customer-programmable chips that enhance CPU performance for intensive tasks such as machine learning.

Why Does LSCC Give Us Pause?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 12.2% annually over the last two years
2. Anticipated sales growth of 2.6% for the next year implies demand will be shaky
3. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 6.1 percentage points

Lattice Semiconductor’s stock price of $49.08 implies a valuation ratio of 45.4x forward price-to-earnings. If you’re considering LSCC for your portfolio, see our FREE research report to learn more.

Cummins (CMI)

Trailing 12-Month GAAP Operating Margin: 11%

With more than half of the heavy-duty truck market using its engines at one point, Cummins (NYSE:CMI) offers engines and power systems.

Why Does CMI Fall Short?

1. Projected sales decline of 2.7% for the next 12 months points to a tough demand environment ahead
2. Free cash flow margin dropped by 10.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Diminishing returns on capital suggest its earlier profit pools are drying up

At $294.10 per share, Cummins trades at 12.8x forward price-to-earnings. Read our free research report to see why you should think twice about including CMI in your portfolio.

Penumbra (PEN)

Trailing 12-Month GAAP Operating Margin: 3%

Founded in 2004 to address challenging medical conditions with significant unmet needs, Penumbra (NYSE:PEN) develops and manufactures innovative medical devices for treating vascular diseases and providing immersive healthcare rehabilitation solutions.

Why Are We Cautious About PEN?

1. Revenue base of $1.24 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 3% for the last five years
3. Push for growth has led to negative returns on capital, signaling value destruction

Penumbra is trading at $292.84 per share, or 73x forward price-to-earnings. To fully understand why you should be careful with PEN, check out our full research report (it’s free).

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 9 Market-Beating Stocks. 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.