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".
Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. Keeping that in mind, here are two profitable companies that balance growth and profitability and one that may struggle to keep up.
One Stock to Sell:
Carter's (CRI)
Trailing 12-Month GAAP Operating Margin: 5%
Rumored to sell more than 10 products for every child born in the United States, Carter's (NYSE:CRI) is an American designer and marketer of children's apparel.
Why Do We Avoid CRI?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores
- Low free cash flow margin of 6.5% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Carter’s stock price of $31.86 implies a valuation ratio of 14.5x forward P/E. Read our free research report to see why you should think twice about including CRI in your portfolio.
Two Stocks to Watch:
Lennox (LII)
Trailing 12-Month GAAP Operating Margin: 19.9%
Based in Texas and founded over a century ago, Lennox (NYSE:LII) is a climate control solutions company offering heating, ventilation, air conditioning, and refrigeration (HVACR) goods.
Why Are We Positive On LII?
- Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
Lennox is trading at $511.63 per share, or 21.1x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
Nelnet (NNI)
Trailing 12-Month GAAP Operating Margin: 33.8%
Starting as a student loan servicer in the 1970s and evolving through the changing landscape of education finance, Nelnet (NYSE:NNI) provides student loan servicing, education technology, payment processing, and banking services while managing a portfolio of education loans.
Why Is NNI a Top Pick?
- Impressive 18% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Share buybacks catapulted its annual earnings per share growth to 101%, which outperformed its revenue gains over the last two years
- Acceptable return on equity suggests management generated shareholder value by investing in profitable projects
At $130.48 per share, Nelnet trades at 3x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out 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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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