Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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. That said, here are three profitable companies to steer clear of and a few better alternatives.
Okta (OKTA)
Trailing 12-Month GAAP Operating Margin: 2.6%
Named after the meteorological measurement for cloud cover, Okta (NASDAQ: OKTA) provides cloud-based identity management solutions that help organizations securely connect their employees, partners, and customers to the right applications and services.
Why Is OKTA Not Exciting?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 10.9% underwhelmed
- Estimated sales growth of 8.7% for the next 12 months implies demand will slow from its two-year trend
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 2.9 percentage points
Okta is trading at $90.21 per share, or 5.4x forward price-to-sales. If you’re considering OKTA for your portfolio, see our FREE research report to learn more.
Olaplex (OLPX)
Trailing 12-Month GAAP Operating Margin: 9.1%
Rising to fame on TikTok because of its “bond building" hair products, Olaplex (NASDAQ: OLPX) offers products and treatments that repair the damage caused by traditional heat and chemical-based styling goods.
Why Do We Think Twice About OLPX?
- Products have few die-hard fans as sales have declined by 16.4% annually over the last three years
- Sales were less profitable over the last three years as its earnings per share fell by 49.6% annually, worse than its revenue declines
- Free cash flow margin dropped by 13.2 percentage points over the last year, implying the company became more capital intensive as competition picked up
At $1.18 per share, Olaplex trades at 13.9x forward P/E. Dive into our free research report to see why there are better opportunities than OLPX.
DistributionNOW (DNOW)
Trailing 12-Month GAAP Operating Margin: 4.7%
Spun off from National Oilwell Varco, DistributionNOW (NYSE: DNOW) provides distribution and supply chain solutions for the energy and industrial end markets.
Why Is DNOW Risky?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Earnings per share have contracted by 4.9% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
DistributionNOW’s stock price of $14.08 implies a valuation ratio of 15.6x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why DNOW doesn’t pass our bar.
Stocks We Like More
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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-small-cap company Exlservice (+354% 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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