Even if a company is profitable, it doesn’t always mean it’s a great investment. Some struggle to maintain growth, face looming threats, or fail to reinvest wisely, limiting their future potential.
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 to avoid and some better opportunities instead.
Strategic Education (STRA)
Trailing 12-Month GAAP Operating Margin: 14%
Formed through the merger of Strayer Education and Capella Education in 2018, Strategic Education (NASDAQ:STRA) is a career-focused higher education provider.
Why Do We Avoid STRA?
- Number of domestic students has disappointed over the past two years, indicating weak demand for its offerings
- Earnings per share lagged its peers over the last five years as they only grew by 3% annually
- Free cash flow margin is expected to remain in place over the coming year
Strategic Education’s stock price of $75.90 implies a valuation ratio of 9.5x forward P/E. If you’re considering STRA for your portfolio, see our FREE research report to learn more.
Piper Sandler (PIPR)
Trailing 12-Month GAAP Operating Margin: 23.6%
Tracing its roots back to 1895 and rebranded from Piper Jaffray in 2020, Piper Sandler (NYSE:PIPR) is an investment bank that provides advisory services, capital raising, institutional brokerage, and research for corporations, governments, and institutional investors.
Why Does PIPR Fall Short?
- Muted 5% annual revenue growth over the last five years shows its demand lagged behind its financials peers
- Performance over the past five years shows its incremental sales were less profitable, as its 3.3% annual earnings per share growth trailed its revenue gains
- Annual tangible book value per share growth of 6.4% over the last five years was below our standards for the financials sector
Piper Sandler is trading at $71.76 per share, or 14.5x forward P/E. Read our free research report to see why you should think twice about including PIPR in your portfolio.
PulteGroup (PHM)
Trailing 12-Month GAAP Operating Margin: 15.7%
Having delivered over 850,000 homes since its founding in 1950, PulteGroup (NYSE:PHM) is one of America's largest homebuilders, constructing single-family homes, townhouses, and condominiums for first-time, move-up, and active adult buyers across 46 markets in 25 states.
Why Does PHM Worry Us?
- Sales tumbled by 1.3% annually over the last two years, showing market trends are working against it during this cycle
- Earnings per share have contracted by 12.2% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Waning returns on capital imply its previous profit engines are losing steam
At $119.18 per share, PulteGroup trades at 11.3x forward P/E. To fully understand why you should be careful with PHM, check out our full research report (it’s free).
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.