Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
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 that don’t make the cut and some better opportunities instead.
Nike (NKE)
Trailing 12-Month GAAP Operating Margin: 10.3%
Originally selling Japanese Onitsuka Tiger sneakers as Blue Ribbon Sports, Nike (NYSE: NKE) is a global titan in athletic footwear, apparel, equipment, and accessories.
Why Should You Dump NKE?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $61.39 per share, Nike trades at 30.4x forward P/E. Check out our free in-depth research report to learn more about why NKE doesn’t pass our bar.
Woodward (WWD)
Trailing 12-Month GAAP Operating Margin: 12.6%
Initially designing controls for water wheels in the early 1900s, Woodward (NASDAQ: WWD) designs, services, and manufactures energy control products and optimization solutions.
Why Do We Think Twice About WWD?
- 2.8% annual revenue growth over the last five years was slower than its industrials peers
- Earnings per share lagged its peers over the last five years as they only grew by 3.1% annually
- Free cash flow margin dropped by 12.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Woodward is trading at $218.52 per share, or 32.9x forward P/E. To fully understand why you should be careful with WWD, check out our full research report (it’s free).
Coherent (COHR)
Trailing 12-Month GAAP Operating Margin: 6.2%
Created through the 2022 rebranding of II-VI Incorporated, a company with roots dating back to 1971, Coherent (NYSE: COHR) develops and manufactures advanced materials, lasers, and optical components for applications ranging from telecommunications to industrial manufacturing.
Why Are We Hesitant About COHR?
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 4.9% annually
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 11.5 percentage points
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its decreasing returns suggest its historical profit centers are aging
Coherent’s stock price of $78.99 implies a valuation ratio of 19.3x forward P/E. Read our free research report to see why you should think twice about including COHR in your portfolio.
Stocks We Like More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 9 Market-Beating Stocks. 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.
