Even if a company is profitable, it doesn’t always mean it’s a great investment. Some struggle to maintain growth, face looming threats, or fail to reinvest wisely, limiting their future potential.
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 generates reliable profits without sacrificing growth and two best left off your watchlist.
Two Stocks to Sell:
Petco (WOOF)
Trailing 12-Month GAAP Operating Margin: 2%
Historically known for its window displays of pets for sale or adoption, Petco (NASDAQ: WOOF) is a specialty retailer of pet food and supplies as well as a provider of services such as wellness checks and grooming.
Why Are We Out on WOOF?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Issuance of new shares over the last three years caused its earnings per share to fall by 38.6% annually
- High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $2.99 per share, Petco trades at 13.1x forward P/E. If you’re considering WOOF for your portfolio, see our FREE research report to learn more.
Bright Horizons (BFAM)
Trailing 12-Month GAAP Operating Margin: 10.7%
Founded in 1986, Bright Horizons (NYSE: BFAM) is a global provider of child care, early education, and workforce support solutions.
Why Do We Pass on BFAM?
- 14.1% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
- Returns on capital are growing as management invests in more worthwhile ventures
Bright Horizons’s stock price of $82.16 implies a valuation ratio of 16.9x forward P/E. To fully understand why you should be careful with BFAM, check out our full research report (it’s free).
One Stock to Watch:
Leonardo DRS (DRS)
Trailing 12-Month GAAP Operating Margin: 9.5%
Developing submarine detection systems for the U.S. Navy, Leonardo DRS (NASDAQ: DRS) is a provider of defense systems, electronics, and military support services.
Why Should DRS Be on Your Watchlist?
- Annual revenue growth of 13.6% over the past two years was outstanding, reflecting market share gains this cycle
- Earnings growth has trumped its peers over the last two years as its EPS has compounded at 25% annually
- Industry-leading 13.2% return on capital demonstrates management’s skill in finding high-return investments
Leonardo DRS is trading at $41.57 per share, or 33.5x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren't just high-quality businesses. Something is happening with them right now. Elite fundamentals meeting near-term momentum — both boxes checked at the same time.
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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.
