A company with profits isn’t always a great investment. Some struggle to maintain growth, face looming threats, or fail to reinvest wisely, limiting their future potential.
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 to steer clear of and a few better alternatives.
Norwegian Cruise Line (NCLH)
Trailing 12-Month GAAP Operating Margin: 15.4%
With amenities like a full go-kart race track built into its ships, Norwegian Cruise Line (NYSE:NCLH) is a premier global cruise company.
Why Are We Hesitant About NCLH?
- Performance surrounding its passenger cruise days has lagged its peers
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Norwegian Cruise Line’s stock price of $18.41 implies a valuation ratio of 8.7x forward P/E. Check out our free in-depth research report to learn more about why NCLH doesn’t pass our bar.
Zurn Elkay (ZWS)
Trailing 12-Month GAAP Operating Margin: 16.1%
Claiming to have saved more than 30 billion gallons of water, Zurn Elkay (NYSE:ZWS) provides water management solutions to various industries.
Why Does ZWS Fall Short?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Estimated sales growth of 3.5% for the next 12 months implies demand will slow from its two-year trend
- Performance over the past five years was negatively impacted by new share issuances as its earnings per share dropped by 8.4% annually, worse than its revenue
At $35.56 per share, Zurn Elkay trades at 26.1x forward P/E. If you’re considering ZWS for your portfolio, see our FREE research report to learn more.
Select Medical (SEM)
Trailing 12-Month GAAP Operating Margin: 7%
With a nationwide network spanning 46 states and over 2,700 healthcare facilities, Select Medical (NYSE:SEM) operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers across the United States.
Why Is SEM Risky?
- Declining admissions over the past two years imply it may need to invest in 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
- 13.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Select Medical is trading at $14.92 per share, or 12.8x forward P/E. To fully understand why you should be careful with SEM, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
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).
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