Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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

A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. Keeping that in mind, here are three profitable companies that don’t make the cut and some better opportunities instead.

Dillard's (DDS)

Trailing 12-Month GAAP Operating Margin: 10.9%

With stores located largely in the Southern and Western US, Dillard’s (NYSE: DDS) is a department store chain that sells clothing, cosmetics, accessories, and home goods.

Why Are We Cautious About DDS?

1. Absence of new stores indicates weak demand as management focuses on improving existing location performance
2. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
3. Sales are projected to tank by 2.1% over the next 12 months as demand evaporates further

At $612.81 per share, Dillard's trades at 21.8x forward P/E. Check out our free in-depth research report to learn more about why DDS doesn’t pass our bar.

Vontier (VNT)

Trailing 12-Month GAAP Operating Margin: 18%

A spin-off of a spin-off, Vontier (NYSE: VNT) provides electronic products and systems to the transportation, automotive, and manufacturing sectors.

Why Do We Avoid VNT?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. 7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Vontier is trading at $40.42 per share, or 12.1x forward P/E. Read our free research report to see why you should think twice about including VNT in your portfolio.

Fidelity National Financial (FNF)

Trailing 12-Month GAAP Operating Margin: 10.6%

Issuing more title insurance policies than any other company in the United States, Fidelity National Financial (NYSE: FNF) provides title insurance and escrow services for real estate transactions while also offering annuities and life insurance through its F&G subsidiary.

Why Does FNF Fall Short?

1. Stagnant net premiums earned over the last five years suggest the firm needs alternative growth strategies
2. Expenses have increased as a percentage of revenue over the last four years as its pre-tax profit margin fell by 10.9 percentage points
3. Incremental sales over the last five years were less profitable as its 3.4% annual earnings per share growth lagged its revenue gains

Fidelity National Financial’s stock price of $56.15 implies a valuation ratio of 1.7x forward P/B. To fully understand why you should be careful with FNF, check out our full research report (it’s free for active Edge members).

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