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Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.

Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.

Grocery Outlet (GO)

Trailing 12-Month GAAP Operating Margin: 1.2%

Due to its differentiated procurement and buying approach, Grocery Outlet (NASDAQ:GO) is a discount grocery store chain that offers substantial discounts on name-brand products.

Why Does GO Worry Us?

1. Substandard operating profitability and its deterioration over the last year limit its responsiveness to unforeseen market trends

2. Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam

3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

Grocery Outlet is trading at $13.99 per share, or 17.4x forward P/E. Read our free research report to see why you should think twice about including GO in your portfolio, it’s free.

WESCO (WCC)

Trailing 12-Month GAAP Operating Margin: 5.5%

Based in Pittsburgh, WESCO (NYSE:WCC) provides electrical, industrial, and communications products and augments them with services such as supply chain management.

Why Are We Hesitant About WCC?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion

2. Earnings per share have contracted by 14.3% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance

3. Free cash flow margin dropped by 3.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up

WESCO’s stock price of $178.99 implies a valuation ratio of 12.2x forward P/E. Check out our free in-depth research report to learn more about why WCC doesn’t pass our bar.

REV Group (REVG)

Trailing 12-Month GAAP Operating Margin: 4.9%

Offering the first full-electric North American fire truck, REV (NYSE:REVG) manufactures and sells specialty vehicles.

Why Does REVG Give Us Pause?

1. Sales were flat over the last five years, indicating it’s failed to expand this cycle

2. Gross margin of 11.7% reflects its high production costs

3. Subpar operating margin of 2.5% constrains its ability to invest in process improvements or effectively respond to new competitive threats