Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
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.
CarMax (KMX)
Trailing 12-Month GAAP Operating Margin: 3.1%
Known for its transparent, customer-centric approach and wide selection of vehicles, Carmax (NYSE: KMX) is the largest automotive retailer in the United States.
Why Is KMX Risky?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Gross margin of 10.9% is below its competitors, leaving less money for marketing and promotions
- 16× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
CarMax is trading at $32.31 per share, or 13.6x forward P/E. Dive into our free research report to see why there are better opportunities than KMX.
Manitowoc (MTW)
Trailing 12-Month GAAP Operating Margin: 2.4%
Contracted by the United States Navy during WWII, Manitowoc (NYSE: MTW) provides cranes and lifting equipment.
Why Do We Steer Clear of MTW?
- Backlog has dropped by 13.6% on average over the past two years, suggesting it’s losing orders as competition picks up
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 72.8% annually, worse than its revenue
- Weak free cash flow margin of -0.4% has deteriorated further over the last five years as its investments increased
At $10.47 per share, Manitowoc trades at 14.9x forward P/E. To fully understand why you should be careful with MTW, check out our full research report (it’s free for active Edge members).
IQVIA (IQV)
Trailing 12-Month GAAP Operating Margin: 13.7%
Created from the 2016 merger of Quintiles (a clinical research organization) and IMS Health (a healthcare data specialist), IQVIA (NYSE: IQV) provides clinical research services, data analytics, and technology solutions to help pharmaceutical companies develop and market medications more effectively.
Why Are We Cautious About IQV?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 3.5% over the last two years was below our standards for the healthcare sector
- Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 3.6 percentage points
IQVIA’s stock price of $216.16 implies a valuation ratio of 17.5x forward P/E. Read our free research report to see why you should think twice about including IQV in your portfolio.
Stocks We Like More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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