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. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.
Scholastic (SCHL)
Trailing 12-Month GAAP Operating Margin: 2.1%
Creator of the legendary Scholastic Book Fair, Scholastic (NASDAQ: SCHL) is an international company specializing in children's publishing, education, and media services.
Why Are We Out on SCHL?
- Products and services have few die-hard fans as sales have declined by 2.3% annually over the last two years
- Underwhelming 6% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its shrinking returns suggest its past profit sources are losing steam
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $25.95 per share, Scholastic trades at 11.6x forward P/E. Dive into our free research report to see why there are better opportunities than SCHL.
Lincoln Electric (LECO)
Trailing 12-Month GAAP Operating Margin: 16.6%
Headquartered in Ohio, Lincoln Electric (NASDAQ: LECO) manufactures and sells welding equipment for various industries.
Why Does LECO Fall Short?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Projected sales growth of 6.4% for the next 12 months suggests sluggish demand
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 5.2% annually
Lincoln Electric’s stock price of $237.27 implies a valuation ratio of 24.4x forward P/E. Read our free research report to see why you should think twice about including LECO in your portfolio.
Tennant (TNC)
Trailing 12-Month GAAP Operating Margin: 8.3%
As the world’s largest manufacturer of autonomous mobile robots, Tennant (NYSE: TNC) designs, manufactures, and sells cleaning products to various sectors.
Why Do We Avoid TNC?
- 3% annual revenue growth over the last two years was slower than its industrials peers
- Earnings per share fell by 2.1% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
- 4.4 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
Tennant is trading at $81.50 per share, or 13.3x forward P/E. If you’re considering TNC for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking 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-small-cap company Comfort Systems (+782% 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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