Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages. Just because a business is in the green today doesn’t mean it will thrive tomorrow.
Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. That said, here is one profitable company that balances growth and profitability and two that may struggle to keep up.
Two Stocks to Sell:
Xponential Fitness (XPOF)
Trailing 12-Month GAAP Operating Margin: 6.2%
Owner of Club Pilates, Stretch Lab, BFT and Pure Barre, Xponential Fitness (NYSE:XPOF) is a boutique fitness brand offering diverse and specialized exercise experiences.
Why Do We Steer Clear of XPOF?
- Lackluster 19.5% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- High net-debt-to-EBITDA ratio of 5× could force the company to raise capital on unfavorable terms if market conditions deteriorate
Xponential Fitness is trading at $3.84 per share, or 7x forward P/E. To fully understand why you should be careful with XPOF, check out our full research report (it’s free).
Lumen (LUMN)
Trailing 12-Month GAAP Operating Margin: 1.7%
With approximately 350,000 route miles of fiber optic cable spanning North America and the Asia Pacific, Lumen Technologies (NYSE:LUMN) operates a vast fiber optic network that provides communications, cloud connectivity, security, and IT solutions to businesses and consumers.
Why Are We Out on LUMN?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 10.2% annually over the last five years
- Inability to adjust its cost structure while its revenue declined over the last five years led to a 20.9 percentage point drop in the company’s adjusted operating margin
- Sales were less profitable over the last five years as its earnings per share fell by 18% annually, worse than its revenue declines
Lumen’s stock price of $6.85 implies a valuation ratio of 5.8x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including LUMN in your portfolio.
One Stock to Buy:
Ross Stores (ROST)
Trailing 12-Month GAAP Operating Margin: 13.7%
Selling excess inventory or overstocked items from other retailers, Ross Stores (NASDAQ:ROST) is an off-price concept that sells apparel and other goods at prices much lower than department stores.
Why Is ROST a Good Business?
- New store openings and solid same-store sales performance have boosted its top-line growth
- Same-store sales growth averaged 6.1% over the past two years, showing it’s bringing new and repeat shoppers into its stores
- Industry-leading 30.6% return on capital demonstrates management’s skill in finding high-return investments, and its returns are climbing as it finds even more attractive growth opportunities
At $224.00 per share, Ross Stores trades at 27.1x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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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 Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.