Even if a company is profitable, it doesn’t always mean it’s a great investment. Some struggle to maintain growth, face looming threats, or fail to reinvest wisely, limiting their future potential.

A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. That said, here are three profitable companies to steer clear of and a few better alternatives.

Entegris (ENTG)

Trailing 12-Month GAAP Operating Margin: 16%

With fabs representing the company’s largest customer type, Entegris (NASDAQ: ENTG) supplies products that purify, protect, and generally ensure the integrity of raw materials needed for advanced semiconductor manufacturing.

Why Do We Steer Clear of ENTG?

1. Annual sales declines of 7.5% for the past two years show its products and services struggled to connect with the market during this cycle
2. Anticipated sales growth of 2.2% for the next year implies demand will be shaky
3. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 6.7 percentage points

Entegris’s stock price of $82.10 implies a valuation ratio of 25.5x forward P/E. To fully understand why you should be careful with ENTG, check out our full research report (it’s free).

BJ's (BJRI)

Trailing 12-Month GAAP Operating Margin: 2.1%

Founded in 1978 in California, BJ’s Restaurants (NASDAQ: BJRI) is a chain of restaurants whose menu features classic American dishes, often with a twist.

Why Should You Sell BJRI?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
2. Lacking pricing power results in an inferior gross margin of 14.7% that must be offset by turning more tables
3. Underwhelming 2.6% return on capital reflects management’s difficulties in finding profitable growth opportunities

At $33.50 per share, BJ's trades at 15.9x forward P/E. Read our free research report to see why you should think twice about including BJRI in your portfolio.

Novanta (NOVT)

Trailing 12-Month GAAP Operating Margin: 13.4%

Originally a pioneer in the laser scanning industry during the late 1960s, Novanta (NASDAQ: NOVT) offers medicine and manufacturing technology to the medical, life sciences, and manufacturing industries.

Why Do We Think Twice About NOVT?

1. 3.7% annual revenue growth over the last two years was slower than its industrials peers
2. Flat earnings per share over the last two years lagged its peers
3. Free cash flow margin shrank by 8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Novanta is trading at $115.57 per share, or 32.8x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why NOVT doesn’t pass our bar.

Stocks We Like More

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