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. Keeping that in mind, here is one profitable company that balances growth and profitability and two that may face some trouble.
Two Stocks to Sell:
LGI Homes (LGIH)
Trailing 12-Month GAAP Operating Margin: 6%
Based in Texas, LGI Homes (NASDAQ:LGIH) is a homebuilding company specializing in constructing affordable, entry-level single-family homes in desirable communities across the United States.
Why Is LGIH Risky?
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 10.4% declines over the past two years
- Eroding returns on capital suggest its historical profit centers are aging
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
LGI Homes is trading at $45.44 per share, or 11.3x forward P/E. To fully understand why you should be careful with LGIH, check out our full research report (it’s free for active Edge members).
Elanco (ELAN)
Trailing 12-Month GAAP Operating Margin: 4.3%
Originally established as a division of pharmaceutical giant Eli Lilly before becoming independent in 2018, Elanco Animal Health (NYSE:ELAN) develops and sells medications, vaccines, and other health products for pets and farm animals across more than 90 countries.
Why Are We Hesitant About ELAN?
- Muted 2.5% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Push for growth has led to negative returns on capital, signaling value destruction
At $21.34 per share, Elanco trades at 22.1x forward P/E. Read our free research report to see why you should think twice about including ELAN in your portfolio.
One Stock to Watch:
Wabtec (WAB)
Trailing 12-Month GAAP Operating Margin: 16.4%
Also known as Wabtec, Westinghouse Air Brake Technologies (NYSE:WAB) provides equipment, systems, and related software for the railway industry.
Why Are We Fans of WAB?
- Operating margin expanded by 6.5 percentage points over the last five years as it scaled and became more efficient
- Share repurchases over the last two years enabled its annual earnings per share growth of 22.6% to outpace its revenue gains
- WAB is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Wabtec’s stock price of $199.87 implies a valuation ratio of 20.8x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in 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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