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".
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. Keeping that in mind, here are three profitable companies that don’t make the cut and some better opportunities instead.
8x8 (EGHT)
Trailing 12-Month GAAP Operating Margin: 2.1%
Founded in 1987, 8x8 (NYSE: EGHT) provides software for organizations to efficiently communicate and collaborate with their customers, employees, and partners.
Why Do We Avoid EGHT?
- Offerings couldn’t generate interest over the last year as its billings have averaged 1.4% declines
- Sales are projected to remain flat over the next 12 months as demand decelerates from its three-year trend
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
At $1.71 per share, 8x8 trades at 0.3x forward price-to-sales. To fully understand why you should be careful with EGHT, check out our full research report (it’s free).
Shoe Carnival (SCVL)
Trailing 12-Month GAAP Operating Margin: 7.6%
Known for its playful atmosphere that features carnival elements, Shoe Carnival (NASDAQ: SCVL) is a retailer that sells footwear from mainstream brands for the entire family.
Why Do We Pass on SCVL?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Revenue base of $1.20 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Projected sales decline of 1.4% for the next 12 months points to a tough demand environment ahead
Shoe Carnival’s stock price of $19.51 implies a valuation ratio of 6.5x forward P/E. Dive into our free research report to see why there are better opportunities than SCVL.
XPO (XPO)
Trailing 12-Month GAAP Operating Margin: 8.4%
Owning a mobile game simulating freight operations for the Tour de France, XPO (NYSE: XPO) is a transportation company specializing in expedited shipping services.
Why Do We Steer Clear of XPO?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 10.7% annually over the last five years
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- Free cash flow margin dropped by 5.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
XPO is trading at $116.38 per share, or 28.7x forward P/E. Check out our free in-depth research report to learn more about why XPO doesn’t pass our bar.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 6 Stocks for this week. 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 Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.
