3 Profitable Stocks with Questionable Fundamentals

Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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 that don’t make the cut and some better opportunities instead.

Dollar General (DG)

Trailing 12-Month GAAP Operating Margin: 4.2%

Appealing to the budget-conscious consumer, Dollar General (NYSE:DG) is a discount retailer that sells a wide range of household essentials, groceries, apparel/beauty products, and seasonal merchandise.

Why Do We Think Twice About DG?

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. Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 29.9%
3. 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

Dollar General is trading at $92.10 per share, or 15.7x forward P/E. Dive into our free research report to see why there are better opportunities than DG.

Red Rock Resorts (RRR)

Trailing 12-Month GAAP Operating Margin: 29.3%

Founded in 1976, Red Rock Resorts (NASDAQ:RRR) operates a range of casino resorts and entertainment properties, primarily in the Las Vegas metropolitan area.

Why Should You Sell RRR?

1. Lackluster 1.7% annual revenue growth over the last five years indicates the company is losing ground to competitors
2. Demand will likely fall over the next 12 months as Wall Street expects flat revenue
3. Eroding returns on capital suggest its historical profit centers are aging

Red Rock Resorts’s stock price of $43.43 implies a valuation ratio of 26.9x forward P/E. If you’re considering RRR for your portfolio, see our FREE research report to learn more.

Surgery Partners (SGRY)

Trailing 12-Month GAAP Operating Margin: 11.2%

With more than 180 locations across 33 states serving as alternatives to traditional hospital settings, Surgery Partners (NASDAQ:SGRY) operates a national network of outpatient surgical facilities including ambulatory surgery centers and short-stay surgical hospitals.

Why Does SGRY Worry Us?

1. Weak unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 4.2 percentage points
3. High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate

At $23.12 per share, Surgery Partners trades at 21.8x forward P/E. To fully understand why you should be careful with SGRY, 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 Strong Momentum 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.