Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. That said, here are three profitable companies to steer clear of and a few better alternatives.
Mattel (MAT)
Trailing 12-Month GAAP Operating Margin: 8.3%
Known for the creation of iconic toys such as Barbie and Hotwheels, Mattel (NASDAQ: MAT) is a global children's entertainment company specializing in the design and production of consumer products.
Why Do We Avoid MAT?
- Sales trends were unexciting over the last five years as its 1.2% annual growth was below the typical consumer discretionary company
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 8.9% for the last two years
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $13.29 per share, Mattel trades at 9.8x forward P/E. Dive into our free research report to see why there are better opportunities than MAT.
D.R. Horton (DHI)
Trailing 12-Month GAAP Operating Margin: 11.4%
One of the largest homebuilding companies in the U.S., D.R. Horton (NYSE: DHI) builds a variety of new construction homes across multiple markets.
Why Do We Steer Clear of DHI?
- Backlog has dropped by 3.6% on average over the past two years, suggesting it’s losing orders as competition picks up
- Earnings per share have contracted by 16% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Diminishing returns on capital suggest its earlier profit pools are drying up
D.R. Horton is trading at $140.38 per share, or 12.4x forward P/E. If you’re considering DHI for your portfolio, see our FREE research report to learn more.
Radian Group (RDN)
Trailing 12-Month GAAP Operating Margin: 43.6%
Founded during the housing boom of 1977 and weathering multiple real estate cycles since, Radian Group (NYSE: RDN) provides mortgage insurance and real estate services, helping lenders manage risk and homebuyers achieve affordable homeownership.
Why Does RDN Give Us Pause?
- 4.4% annualized net premiums earned growth over the last five years lagged behind its insurance peers
- Efficiency has decreased over the last five years as its pre-tax profit margin fell by 7.4 percentage points
- Incremental sales over the last two years were less profitable as its 6.6% annual earnings per share growth lagged its revenue gains
Radian Group’s stock price of $34.80 implies a valuation ratio of 0.9x forward P/B. Check out our free in-depth research report to learn more about why RDN doesn’t pass our bar.
Stocks We Like More
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
Find out which 5 stocks it’s flagging this month — FREE. Get Our Top 5 Growth Stocks for Free HERE.
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.
