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".
Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. That said, here is one profitable company that balances growth and profitability and two best left off your watchlist.
Two Stocks to Sell:
Shoe Carnival (SCVL)
Trailing 12-Month GAAP Operating Margin: 6.8%
Known for its playful atmosphere that features carnival elements, Shoe Carnival (NASDAQ: SCVL) is a retailer that sells footwear from mainstream brands for the entire family.
Why Is SCVL Risky?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Smaller revenue base of $1.18 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Sales are projected to remain flat over the next 12 months as demand decelerates from its six-year trend
Shoe Carnival is trading at $22.55 per share, or 8x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SCVL doesn’t pass our bar.
Quanex (NX)
Trailing 12-Month GAAP Operating Margin: 3.7%
Starting in the seamless tube industry, Quanex (NYSE: NX) manufactures building products like window, door, kitchen, and bath cabinet components.
Why Is NX Not Exciting?
- Earnings per share fell by 5.4% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 9.9 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $19.38 per share, Quanex trades at 7.1x forward P/E. Read our free research report to see why you should think twice about including NX in your portfolio.
One Stock to Buy:
Vital Farms (VITL)
Trailing 12-Month GAAP Operating Margin: 9.9%
With an emphasis on ethically produced products, Vital Farms (NASDAQ: VITL) specializes in pasture-raised eggs and butter.
Why Is VITL a Good Business?
- Unit sales were phenomenal over the past two years, showing demand is robust and retailers can’t stock enough of its products
- Notable projected revenue growth of 26.7% for the next 12 months hints at market share gains
- Earnings growth has trumped its peers over the last three years as its EPS has compounded at 161% annually
Vital Farms’s stock price of $37.76 implies a valuation ratio of 27.3x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
Donald Trump’s April 2024 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 5 Growth Stocks for this month. 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-small-cap company Comfort Systems (+782% 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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