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 are three profitable companies to steer clear of and a few better alternatives.
Bright Horizons (BFAM)
Trailing 12-Month GAAP Operating Margin: 11%
Founded in 1986, Bright Horizons (NYSE: BFAM) is a global provider of child care, early education, and workforce support solutions.
Why Do We Think BFAM Will Underperform?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Free cash flow margin is on track to jump by 1.4 percentage points next year, meaning the company will have more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Rising returns on capital show management is making relatively better investments
At $96.98 per share, Bright Horizons trades at 19.7x forward P/E. Dive into our free research report to see why there are better opportunities than BFAM.
Vertex Pharmaceuticals (VRTX)
Trailing 12-Month GAAP Operating Margin: 34.1%
Founded in 1989 with a mission to create medicines that treat the underlying causes of disease rather than just symptoms, Vertex Pharmaceuticals (NASDAQ: VRTX) develops and markets transformative medicines for serious diseases, with a focus on cystic fibrosis, sickle cell disease, and pain management.
Why Is VRTX Not Exciting?
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 14.2 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Vertex Pharmaceuticals is trading at $438.97 per share, or 22.5x forward P/E. Check out our free in-depth research report to learn more about why VRTX doesn’t pass our bar.
Iridium (IRDM)
Trailing 12-Month GAAP Operating Margin: 26.7%
With a constellation of 66 low-earth orbit satellites providing coverage to every inch of the planet, Iridium Communications (NASDAQ: IRDM) operates a global satellite network that provides voice and data services to customers in remote areas where traditional telecommunications are unavailable.
Why Does IRDM Give Us Pause?
- Estimated sales growth of 2.3% for the next 12 months implies demand will slow from its two-year trend
- 4.8 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
- ROIC of 5.2% reflects management’s challenges in identifying attractive investment opportunities
Iridium’s stock price of $19.30 implies a valuation ratio of 16.3x forward P/E. To fully understand why you should be careful with IRDM, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
Check out the high-quality names we’ve flagged in our Top 5 Growth Stocks for this month. 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-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
