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Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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

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 are three profitable companies to avoid and some better opportunities instead.

Scholastic (SCHL)

Trailing 12-Month GAAP Operating Margin: 2%

Creator of the legendary Scholastic Book Fair, Scholastic (NASDAQ:SCHL) is an international company specializing in children's publishing, education, and media services.

Why Is SCHL Not Exciting?

1. Sales stagnated over the last five years and signal the need for new growth strategies

2. Poor expense management has led to an operating margin of 3% that is below the industry average

3. Low returns on capital reflect management’s struggle to allocate funds effectively

Scholastic is trading at $19.42 per share, or 10.8x forward P/E. Check out our free in-depth research report to learn more about why SCHL doesn’t pass our bar.

Silgan Holdings (SLGN)

Trailing 12-Month GAAP Operating Margin: 8.9%

Established in 1987, Silgan Holdings (NYSE:SLGN) is a supplier of rigid packaging for consumer goods products, specializing in metal containers, closures, and plastic packaging.

Why Do We Think SLGN Will Underperform?

1. 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

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

3. High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $53.83 per share, Silgan Holdings trades at 12.9x forward P/E. Read our free research report to see why you should think twice about including SLGN in your portfolio, it’s free.

Taylor Morrison Home (TMHC)

Trailing 12-Month GAAP Operating Margin: 15.1%

Named “America’s Most Trusted Home Builder” in 2019, Taylor Morrison Home (NYSE:TMHC) builds single family homes and communities across the United States.

Why Do We Think Twice About TMHC?

1. Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 13% declines over the past two years

2. Earnings per share have dipped by 2.6% annually over the past two years, which is concerning because stock prices follow EPS over the long term

3. Free cash flow margin dropped by 9.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up