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".
Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. That said, here are three profitable companies that don’t make the cut and some better opportunities instead.
Transcat (TRNS)
Trailing 12-Month GAAP Operating Margin: 6.7%
Serving the pharmaceutical, industrial manufacturing, energy, and chemical process industries, Transcat (NASDAQ: TRNS) provides measurement instruments and supplies.
Why Are We Hesitant About TRNS?
- Poor expense management has led to an operating margin of 7.1% that is below the industry average
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam
Transcat’s stock price of $81.09 implies a valuation ratio of 35.3x forward P/E. If you’re considering TRNS for your portfolio, see our FREE research report to learn more.
Builders FirstSource (BLDR)
Trailing 12-Month GAAP Operating Margin: 8.7%
Headquartered in Irving, TX, Builders FirstSource (NYSE: BLDR) is a construction materials manufacturer that offers a variety of lumber and lumber-related building products.
Why Do We Think Twice About BLDR?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 12.1% annually over the last two years
- Earnings per share have contracted by 23.2% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $107.54 per share, Builders FirstSource trades at 11x forward P/E. Dive into our free research report to see why there are better opportunities than BLDR.
CSG (CSGS)
Trailing 12-Month GAAP Operating Margin: 10.7%
Powering billions of critical customer interactions annually, CSG Systems (NASDAQ: CSGS) provides cloud-based software platforms that help companies manage customer interactions, process payments, and monetize their services.
Why Should You Sell CSGS?
- Muted 3.4% annual revenue growth over the last two years shows its demand lagged behind its business services peers
- Estimated sales growth of 2.5% for the next 12 months is soft and implies weaker demand
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
CSG is trading at $63 per share, or 13.3x forward P/E. To fully understand why you should be careful with CSGS, 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 Growth Stocks for this month. 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 Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.
