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Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.

A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. That said, here are three profitable companies that don’t make the cut and some better opportunities instead.

L.B. Foster (FSTR)

Trailing 12-Month GAAP Operating Margin: 2.9%

Founded with a $2,500 loan, L.B. Foster (NASDAQ:FSTR) is a provider of products and services for the transportation and energy infrastructure sectors, including rail products, construction materials, and coating solutions.

Why Do We Think FSTR Will Underperform?

1. Annual sales declines of 2.3% for the past five years show its products and services struggled to connect with the market during this cycle
2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

At $24.59 per share, L.B. Foster trades at 5.8x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why FSTR doesn’t pass our bar.

Stanley Black & Decker (SWK)

Trailing 12-Month GAAP Operating Margin: 7.7%

With an iconic “STANLEY” logo which has remained virtually unchanged for over a century, Stanley Black & Decker (NYSE:SWK) is a manufacturer primarily catering to the tool and outdoor equipment industry.

Why Do We Pass on SWK?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Earnings per share fell by 8.9% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. 8.7 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

Stanley Black & Decker is trading at $72.99 per share, or 13.6x forward P/E. If you’re considering SWK for your portfolio, see our FREE research report to learn more.

Elanco (ELAN)

Trailing 12-Month GAAP Operating Margin: 2.8%

Originally established as a division of pharmaceutical giant Eli Lilly before becoming independent in 2018, Elanco Animal Health (NYSE:ELAN) develops and sells medications, vaccines, and other health products for pets and farm animals across more than 90 countries.

Why Does ELAN Worry Us?

1. Constant currency revenue growth has disappointed over the past two years and shows demand was soft
2. Issuance of new shares partly offset its revenue growth over the last five years as its earnings per share were flat
3. Negative returns on capital show management lost money while trying to expand the business

Elanco’s stock price of $14.77 implies a valuation ratio of 18.4x forward P/E. To fully understand why you should be careful with ELAN, 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 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today

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