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".
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.
Constellation Brands (STZ)
Trailing 12-Month GAAP Operating Margin: 3.5%
With a presence in more than 100 countries, Constellation Brands (NYSE: STZ) is a globally renowned producer and marketer of beer, wine, and spirits.
Why Does STZ Worry Us?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Estimated sales decline of 6.6% for the next 12 months implies a challenging demand environment
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 28.3 percentage points
Constellation Brands’s stock price of $187.26 implies a valuation ratio of 13.9x forward P/E. If you’re considering STZ for your portfolio, see our FREE research report to learn more.
Matthews (MATW)
Trailing 12-Month GAAP Operating Margin: 4.3%
Originally a death care company, Matthews International (NASDAQ: MATW) is a diversified company offering ceremonial services, brand solutions and industrial technologies.
Why Are We Out on MATW?
- Products and services aren't resonating with the market as its revenue declined by 2.9% annually over the last two years
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 12% annually
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
At $20.41 per share, Matthews trades at 5.5x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why MATW doesn’t pass our bar.
GEO Group (GEO)
Trailing 12-Month GAAP Operating Margin: 12%
With a global footprint spanning three continents and approximately 81,000 beds across 100 facilities, GEO Group (NYSE: GEO) operates secure facilities, processing centers, and reentry services for government agencies in the United States, Australia, and South Africa.
Why Do We Pass on GEO?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Sales over the last five years were less profitable as its earnings per share fell by 31.5% annually while its revenue was flat
- Free cash flow margin dropped by 8.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
GEO Group is trading at $25.35 per share, or 14.2x forward P/E. To fully understand why you should be careful with GEO, check out our full research report (it’s free).
Stocks That Overcame Trump’s 2018 Tariffs
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 176% over the last five years.
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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free.
