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".
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 steer clear of and a few better alternatives.
Walmart (WMT)
Trailing 12-Month GAAP Operating Margin: 4.3%
Known for its large-format Supercenters, Walmart (NYSE:WMT) is a retail pioneer that serves a budget-conscious consumer who is looking for a wide range of products under one roof.
Why Is WMT Not Exciting?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 4.8% over the last six years was below our standards for the consumer retail sector
- Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 24.7%
- Performance over the past six years shows its incremental sales were much less profitable, as its earnings per share fell by 10.9% annually
Walmart’s stock price of $98.41 implies a valuation ratio of 36.8x forward P/E. To fully understand why you should be careful with WMT, check out our full research report (it’s free).
Cincinnati Financial (CINF)
Trailing 12-Month GAAP Operating Margin: 23.3%
Founded in 1950 by independent insurance agents seeking stable market options for their clients, Cincinnati Financial (NASDAQ:CINF) provides property casualty insurance, life insurance, and related financial services through independent agencies across 46 states.
Why Are We Cautious About CINF?
- Annual sales growth of 6.8% over the last five years lagged behind its insurance peers as its large revenue base made it difficult to generate incremental demand
- Operational productivity has decreased over the last four years as its combined ratio worsened by 8.4 percentage points
- Estimated book value per share growth of 2.8% for the next 12 months implies profitability will slow from its two-year trend
At $144.39 per share, Cincinnati Financial trades at 1.6x forward P/B. If you’re considering CINF for your portfolio, see our FREE research report to learn more.
Walker & Dunlop (WD)
Trailing 12-Month GAAP Operating Margin: 10.8%
Originating as a small mortgage banking firm during the Great Depression in 1937, Walker & Dunlop (NYSE:WD) provides commercial real estate financing, property sales, appraisal, and investment management services with a focus on multifamily properties.
Why Do We Think Twice About WD?
- Annual sales declines of 1.6% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share fell by 4.3% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 3.9% annually over the last five years
Walker & Dunlop is trading at $74.46 per share, or 1.4x forward P/B. Dive into our free research report to see why there are better opportunities than WD.
Stocks We Like More
Donald Trump’s April 2024 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out 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 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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