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.
Lithia (LAD)
Trailing 12-Month GAAP Operating Margin: 4.5%
With a strong presence in the Western US, Lithia Motors (NYSE:LAD) sells a wide range of vehicles, including new and used cars, trucks, SUVs, and luxury vehicles from various manufacturers.
Why Are We Cautious About LAD?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Widely-available products (and therefore stiff competition) result in an inferior gross margin of 15.6% that must be offset through higher volumes
- 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $332.05 per share, Lithia trades at 9.1x forward P/E. To fully understand why you should be careful with LAD, check out our full research report (it’s free).
Calavo (CVGW)
Trailing 12-Month GAAP Operating Margin: 3%
A trailblazer in the avocado industry, Calavo Growers (NASDAQ:CVGW) is a pioneering California-based provider of high-quality avocados and other fresh food products.
Why Are We Out on CVGW?
- Products have few die-hard fans as sales have declined by 18.3% annually over the last three years
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 10%
Calavo’s stock price of $25.92 implies a valuation ratio of 15.9x forward P/E. Check out our free in-depth research report to learn more about why CVGW doesn’t pass our bar.
Regeneron (REGN)
Trailing 12-Month GAAP Operating Margin: 25.9%
Founded by scientists who wanted to build a company where science could thrive, Regeneron Pharmaceuticals (NASDAQ:REGN) develops and commercializes medicines for serious diseases, with key products treating eye conditions, allergic diseases, cancer, and other disorders.
Why Do We Think Twice About REGN?
- Sizable revenue base leads to growth challenges as its 4.3% annual revenue increases over the last two years fell short of other healthcare companies
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 23.8 percentage points
- Eroding returns on capital suggest its historical profit centers are aging
Regeneron is trading at $733.37 per share, or 16.6x forward P/E. Read our free research report to see why you should think twice about including REGN in your portfolio.
Stocks We Like More
Check out the high-quality names we’ve flagged in our Top 5 Growth Stocks for this month. 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 Kadant (+351% five-year return). Find your next big winner with StockStory today.