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 generates reliable profits without sacrificing growth and two best left off your watchlist.
Two Stocks to Sell:
The Honest Company (HNST)
Trailing 12-Month GAAP Operating Margin: 1.1%
Co-founded by actress Jessica Alba, The Honest Company (NASDAQ: HNST) sells diapers and wipes, skin care products, and household cleaning products.
Why Should You Sell HNST?
- Modest revenue base of $389.8 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Free cash flow margin dropped by 6.6 percentage points over the last year, implying the company became more capital intensive as competition picked up
- Negative returns on capital show that some of its growth strategies have backfired
At $3.64 per share, The Honest Company trades at 14.5x forward EV-to-EBITDA. To fully understand why you should be careful with HNST, check out our full research report (it’s free for active Edge members).
Carriage Services (CSV)
Trailing 12-Month GAAP Operating Margin: 23.2%
Established in 1991, Carriage Services (NYSE: CSV) is a provider of funeral and cemetery services in the United States.
Why Does CSV Worry Us?
- 4.3% annual revenue growth over the last two years was slower than its consumer discretionary peers
- Estimated sales growth of 3.9% for the next 12 months is soft and implies weaker demand
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 2.3 percentage points over the next year
Carriage Services’s stock price of $44.24 implies a valuation ratio of 13.4x forward P/E. Read our free research report to see why you should think twice about including CSV in your portfolio.
One Stock to Watch:
Target Hospitality (TH)
Trailing 12-Month GAAP Operating Margin: 9.9%
Building mini-communities at places such as oil drilling sites, Target Hospitality (NASDAQ: TH) is a provider of specialty workforce lodging accommodations and services.
Why Are We Fans of TH?
- Excellent operating margin of 25.9% highlights the efficiency of its business model
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
- Returns on capital are growing as management capitalizes on its market opportunities
Target Hospitality is trading at $7.33 per share, or 22.4x forward EV-to-EBITDA. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free for active Edge members.
Stocks We Like Even More
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out 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-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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