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.
BJ's (BJ)
Trailing 12-Month GAAP Operating Margin: 3.9%
Appealing to the budget-conscious individual shopping for a household, BJ’s Wholesale Club (NYSE: BJ) is a membership-only retail chain that sells groceries, appliances, electronics, and household items, often in bulk quantities.
Why Is BJ Not Exciting?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Widely-available products (and therefore stiff competition) result in an inferior gross margin of 18.3% that must be offset through higher volumes
- Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
At $111.08 per share, BJ's trades at 25.3x forward P/E. Dive into our free research report to see why there are better opportunities than BJ.
Service International (SCI)
Trailing 12-Month GAAP Operating Margin: 22.5%
Founded in 1962, Service International (NYSE: SCI) is a leading provider of death care products and services in North America.
Why Does SCI Worry Us?
- Demand for its offerings was relatively low as its number of funeral services performed has underwhelmed
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.6%
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Service International’s stock price of $77.43 implies a valuation ratio of 19.7x forward P/E. Check out our free in-depth research report to learn more about why SCI doesn’t pass our bar.
Amdocs (DOX)
Trailing 12-Month GAAP Operating Margin: 14.4%
Powering the digital experiences of approximately 400 communications companies worldwide, Amdocs (NASDAQ: DOX) provides software and services that help telecommunications and media companies manage customer relationships, monetize services, and automate network operations.
Why Do We Think DOX Will Underperform?
- New orders were hard to come by as its average backlog growth of 1.6% over the past two years underwhelmed
- Sales are projected to tank by 3.5% over the next 12 months as demand evaporates further
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 4.6 percentage points
Amdocs is trading at $93.50 per share, or 12.6x forward P/E. If you’re considering DOX for your portfolio, see our FREE research report to learn more.
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 6 Stocks for this week. 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.
