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. That said, here is one profitable company that balances growth and profitability and two best left off your watchlist.
Two Stocks to Sell:
Mohawk Industries (MHK)
Trailing 12-Month GAAP Operating Margin: 4.5%
Established in 1878, Mohawk Industries (NYSE: MHK) is a leading producer of floor-covering products for both residential and commercial applications.
Why Should You Sell MHK?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.5% over the last five years was below our standards for the consumer discretionary sector
- Free cash flow margin is expected to remain in place over the coming year
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Mohawk Industries is trading at $104.84 per share, or 10.9x forward P/E. To fully understand why you should be careful with MHK, check out our full research report (it’s free).
Gilead Sciences (GILD)
Trailing 12-Month GAAP Operating Margin: 34%
From its groundbreaking work in developing the first single-tablet regimens for HIV treatment, Gilead Sciences (NASDAQ: GILD) develops and markets innovative medicines for life-threatening diseases including HIV, viral hepatitis, COVID-19, and cancer.
Why Do We Think Twice About GILD?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 3.9% for the last five years
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
- Free cash flow margin shrank by 7.5 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $138.94 per share, Gilead Sciences trades at 16.3x forward P/E. Read our free research report to see why you should think twice about including GILD in your portfolio.
One Stock to Buy:
Merck (MRK)
Trailing 12-Month GAAP Operating Margin: 32.6%
With roots dating back to 1891 and a portfolio that includes the blockbuster cancer immunotherapy Keytruda, Merck (NYSE: MRK) develops and sells prescription medicines, vaccines, and animal health products across oncology, infectious diseases, cardiovascular, and other therapeutic areas.
Why Do We Love MRK?
- Massive revenue base of $65.09 billion in a highly regulated sector makes the company difficult to replace, giving it meaningful negotiating power
- Adjusted operating profits increased over the last two years as the company gained some leverage on its fixed costs and became more efficient
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
Merck’s stock price of $120.15 implies a valuation ratio of 23.5x 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
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren't just high-quality businesses. Something is happening with them right now. Elite fundamentals meeting near-term momentum — both boxes checked at the same time.
Find out which stocks our AI platform is flagging this week. See this week's Strong Momentum stocks — FREE. Get Our Strong Momentum Stocks for Free HERE.
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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
