A company with profits isn’t always 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. That said, here are two profitable companies that leverage their financial strength to beat the competition and one best left off your watchlist.
One Stock to Sell:
Trex (TREX)
Trailing 12-Month GAAP Operating Margin: 24%
Addressing the demand for aesthetically-pleasing and unique outdoor living spaces, Trex Company (NYSE: TREX) makes wood-alternative decking, railing, and patio furniture.
Why Do We Think Twice About TREX?
- 5.4% annual revenue growth over the last two years was slower than its industrials peers
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 3.9 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
Trex’s stock price of $56.42 implies a valuation ratio of 25.5x forward P/E. Check out our free in-depth research report to learn more about why TREX doesn’t pass our bar.
Two Stocks to Watch:
Trane Technologies (TT)
Trailing 12-Month GAAP Operating Margin: 18.1%
With low-pressure heating systems as the first product, Trane (NYSE: TT) designs, manufactures, and sells HVAC and refrigeration systems, the former to commercial and residential building customers and the latter to commercial truck manufacturers.
Why Is TT a Good Business?
- Annual revenue growth of 11.6% over the past two years was outstanding, reflecting market share gains this cycle
- Share buybacks catapulted its annual earnings per share growth to 23.7%, which outperformed its revenue gains over the last two years
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures, and its rising returns show it’s making even more lucrative bets
Trane Technologies is trading at $430.30 per share, or 33.1x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Intuitive Surgical (ISRG)
Trailing 12-Month GAAP Operating Margin: 28.2%
Pioneering minimally invasive surgery since its first da Vinci system was FDA-cleared in 2000, Intuitive Surgical (NASDAQ: ISRG) develops and manufactures robotic-assisted surgical systems that enable minimally invasive procedures across various medical specialties.
Why Should ISRG Be on Your Watchlist?
- System Placement averaged 11.8% growth over the past two years and imply healthy demand for its products
- Sales outlook for the upcoming 12 months implies the business will stay on its desirable two-year growth trajectory
- Earnings growth has easily exceeded the peer group average over the last five years as its EPS has compounded at 12.3% annually
At $555.52 per share, Intuitive Surgical trades at 66.3x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even 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 9 Market-Beating Stocks. 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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free.
