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Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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

Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. That said, here is one profitable company that balances growth and profitability and two that may face some trouble.

Two Stocks to Sell:

Kadant (KAI)

Trailing 12-Month GAAP Operating Margin: 16.3%

Headquartered in Massachusetts, Kadant (NYSE:KAI) is a global supplier of high-value, critical components and engineered systems used in process industries worldwide.

Why Does KAI Worry Us?

1. Muted 7.2% annual revenue growth over the last two years shows its demand lagged behind its industrials peers

2. Demand will likely fall over the next 12 months as Wall Street expects flat revenue

3. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 3.4% annually

At $303.20 per share, Kadant trades at 29.9x forward P/E. Read our free research report to see why you should think twice about including KAI in your portfolio, it’s free.

CTS (CTS)

Trailing 12-Month GAAP Operating Margin: 15.1%

With roots dating back to 1896 and a global manufacturing footprint, CTS (NYSE:CTS) designs and manufactures sensors, connectivity components, and actuators for aerospace, defense, industrial, medical, and transportation markets.

Why Are We Out on CTS?

1. Annual sales declines of 6.1% for the past two years show its products and services struggled to connect with the market during this cycle

2. Modest revenue base of $515.8 million gives it less fixed cost leverage and fewer distribution channels than larger companies

3. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term

CTS’s stock price of $39.91 implies a valuation ratio of 18.4x forward P/E. Dive into our free research report to see why there are better opportunities than CTS.

One Stock to Watch:

Barrett (BBSI)

Trailing 12-Month GAAP Operating Margin: 5.1%

Operating as a professional employer organization (PEO) that serves over 8,000 companies with more than 120,000 worksite employees, Barrett Business Services (NASDAQ:BBSI) provides management solutions that help small and mid-sized businesses handle human resources, payroll, workers' compensation, and other administrative functions.

Why Are We Fans of BBSI?

1. Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage

2. ROIC punches in at 57.3%, illustrating management’s expertise in identifying profitable investments, and its rising returns show it’s making even more lucrative bets

3. Rising returns on capital show management is finding more attractive investment opportunities