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. Keeping that in mind, here are three profitable companies to avoid and some better opportunities instead.
Movado (MOV)
Trailing 12-Month GAAP Operating Margin: 5.5%
With its watches displayed in 20 museums around the world, Movado (NYSE: MOV) is a watchmaking company with a portfolio of watch brands and accessories.
Why Do We Avoid MOV?
- 3.6% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Poor free cash flow margin of 5.2% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $37.81 per share, Movado trades at 12x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than MOV.
Service International (SCI)
Trailing 12-Month GAAP Operating Margin: 22.4%
Founded in 1962, Service International (NYSE: SCI) is a leading provider of death care products and services in North America.
Why Do We Steer Clear of SCI?
- Sluggish trends in its funeral services performed suggest customers aren’t adopting its solutions as quickly as the company hoped
- Low free cash flow margin of 14.4% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Service International is trading at $78.83 per share, or 18.8x forward P/E. Read our free research report to see why you should think twice about including SCI in your portfolio.
Affirm (AFRM)
Trailing 12-Month GAAP Operating Margin: 8.3%
Founded by PayPal co-founder Max Levchin with a mission to create honest financial products, Affirm (NASDAQ: AFRM) provides a payment network that allows consumers to make purchases and pay for them over time with transparent, flexible installment loans.
Why Are We Wary of AFRM?
- Negative return on equity shows that some of its growth strategies have backfired
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Affirm’s stock price of $84.35 implies a valuation ratio of 21.9x forward P/E. To fully understand why you should be careful with AFRM, check out our full research report (it’s free).
Stocks We Like More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.
