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 leverages its financial strength to beat the competition and two best left off your watchlist.
Two Stocks to Sell:
Wendy's (WEN)
Trailing 12-Month GAAP Operating Margin: 16.7%
Founded by Dave Thomas in 1969, Wendy’s (NASDAQ:WEN) is a renowned fast-food chain known for its fresh, never-frozen beef burgers, flavorful menu options, and commitment to quality.
Why Are We Hesitant About WEN?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
- 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Wendy’s stock price of $11.72 implies a valuation ratio of 11.5x forward P/E. If you’re considering WEN for your portfolio, see our FREE research report to learn more.
Toll Brothers (TOL)
Trailing 12-Month GAAP Operating Margin: 17.2%
Started by two brothers who started by building and selling just one home in Pennsylvania, today Toll Brothers (NYSE:TOL) is a luxury homebuilder across the United States.
Why Does TOL Fall Short?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 4.6% decline in its backlog
- Projected sales growth of 1.9% for the next 12 months suggests sluggish demand
- Free cash flow margin dropped by 15.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $108 per share, Toll Brothers trades at 7.5x forward P/E. Dive into our free research report to see why there are better opportunities than TOL.
One Stock to Watch:
Humana (HUM)
Trailing 12-Month GAAP Operating Margin: 2.8%
With over 80% of its revenue derived from federal government contracts, Humana (NYSE:HUM) provides health insurance plans and healthcare services to approximately 17 million members, with a strong focus on Medicare Advantage plans for seniors.
Why Could HUM Be a Winner?
- Annual revenue growth of 12.2% over the last five years beat the sector average and underscores the unique value of its offerings
- Enormous revenue base of $120.2 billion gives it leverage over plan holders and advantageous reimbursement terms with healthcare providers
- Estimated revenue growth of 6% for the next 12 months implies its momentum over the last two years will continue
Humana is trading at $230.80 per share, or 15.4x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market 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.