Even if a company is profitable, it doesn’t always mean it’s a great investment. Some struggle to maintain growth, face looming threats, or fail to reinvest wisely, limiting their future potential.

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 avoid and some better opportunities instead.

Twilio (TWLO)

Trailing 12-Month GAAP Operating Margin: 3.1%

Known for the clever "Twilio Magic" demo that had developers creating functioning communications apps in minutes, Twilio (NYSE: TWLO) provides a platform that enables businesses to communicate with their customers through voice, messaging, email, and other digital channels.

Why Are We Cautious About TWLO?

1. Average billings growth of 13.4% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
2. Gross margin of 49% reflects its high servicing costs
3. Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage

Twilio’s stock price of $120.88 implies a valuation ratio of 3.2x forward price-to-sales. Read our free research report to see why you should think twice about including TWLO in your portfolio.

Victoria's Secret (VSCO)

Trailing 12-Month GAAP Operating Margin: 4.8%

Spun off from L Brands in 2020, Victoria’s Secret (NYSE: VSCO) is an intimate clothing and beauty retailer that sells its own brands of lingerie, undergarments, and personal fragrances.

Why Are We Out on VSCO?

1. Flat sales over the last three years suggest it must innovate and find new ways to grow
2. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
3. Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term

Victoria's Secret is trading at $62.75 per share, or 23.2x forward P/E. Check out our free in-depth research report to learn more about why VSCO doesn’t pass our bar.

TEGNA (TGNA)

Trailing 12-Month GAAP Operating Margin: 20.8%

Spun out of Gannett in 2015, TEGNA (NYSE: TGNA) is a media company operating a network of television stations and digital platforms, focusing on local news and community content.

Why Do We Avoid TGNA?

1. 1.3% annual revenue growth over the last five years was slower than its consumer discretionary peers
2. Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 7.9% annually
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

At $20.22 per share, TEGNA trades at 9.1x forward P/E. Dive into our free research report to see why there are better opportunities than TGNA.

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