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. That said, here are three profitable companies to steer clear of and a few better alternatives.
DocuSign (DOCU)
Trailing 12-Month GAAP Operating Margin: 8.6%
Creating the digital equivalent of "sign on the dotted line" for over a billion users worldwide, DocuSign (NASDAQ: DOCU) provides an agreement management platform that enables businesses to electronically prepare, sign, and manage documents and contracts.
Why Is DOCU Not Exciting?
- Underwhelming ARR growth of 8.4% over the last year suggests the company faced challenges in acquiring and retaining long-term customers
- Estimated sales growth of 6.7% for the next 12 months is soft and implies weaker demand
- Operating margin improvement of 3.5 percentage points over the last year demonstrates its ability to scale efficiently
DocuSign’s stock price of $59.73 implies a valuation ratio of 3.8x forward price-to-sales. Dive into our free research report to see why there are better opportunities than DOCU.
Cognex (CGNX)
Trailing 12-Month GAAP Operating Margin: 16.3%
Founded in 1981 when computer vision was in its infancy, Cognex (NASDAQ: CGNX) develops machine vision systems and software that help manufacturers and logistics companies automate quality inspection and tracking of products.
Why Do We Steer Clear of CGNX?
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 12.9 percentage points
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 10.2 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
At $40.64 per share, Cognex trades at 37.5x forward P/E. Check out our free in-depth research report to learn more about why CGNX doesn’t pass our bar.
PulteGroup (PHM)
Trailing 12-Month GAAP Operating Margin: 19.3%
Having delivered over 850,000 homes since its founding in 1950, PulteGroup (NYSE: PHM) is one of America's largest homebuilders, constructing single-family homes, townhouses, and condominiums for first-time, move-up, and active adult buyers across 46 markets in 25 states.
Why Are We Hesitant About PHM?
- Backlog has dropped by 8.2% on average over the past two years, suggesting it’s losing orders as competition picks up
- Forecasted revenue decline of 6.6% for the upcoming 12 months implies demand will fall off a cliff
- Earnings per share were flat over the last two years and fell short of the peer group average
PulteGroup is trading at $132.80 per share, or 12.5x forward P/E. If you’re considering PHM for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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.
