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3 Profitable Stocks We Approach with Caution
Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. Keeping that in mind, here are three profitable companies to avoid and some better opportunities instead.
Papa John's (PZZA)
Trailing 12-Month GAAP Operating Margin: 4.3%
Founded by the eclectic John “Papa John” Schnatter, Papa John’s (NASDAQ:PZZA) is a globally recognized pizza delivery and carryout chain known for “better ingredients” and “better pizza”.
Why Are We Bearish on PZZA?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Projected sales decline of 5.7% for the next 12 months points to a tough demand environment ahead
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 2.6 percentage points
At $19.81 per share, Papa John's trades at 17.1x forward P/E. Read our free research report to see why you should think twice about including PZZA in your portfolio.
Ameresco (AMRC)
Trailing 12-Month GAAP Operating Margin: 6.7%
Having played a role in upgrading the energy solutions of Alcatraz Island, Ameresco (NYSE:AMRC) provides energy and renewable energy solutions for various sectors.
Why Does AMRC Give Us Pause?
- Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 15.7% annually
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Ameresco’s stock price of $21.19 implies a valuation ratio of 15.3x forward P/E. Check out our free in-depth research report to learn more about why AMRC doesn’t pass our bar.
Merck (MRK)
Trailing 12-Month GAAP Operating Margin: 9.6%
With roots dating back to 1891 and a portfolio that includes the blockbuster cancer immunotherapy Keytruda, Merck (NYSE:MRK) develops and sells prescription medicines, vaccines, and animal health products across oncology, infectious diseases, cardiovascular, and other therapeutic areas.
Why Are We Wary of MRK?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 19.9 percentage points
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 11.1% annually while its revenue grew
Merck is trading at $146.15 per share, or 17x forward P/E. To fully understand why you should be careful with MRK, check out our full research report (it’s free).
Stocks We Like More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.