Three Profitable Stocks That Might Be Losing Their Way

Profitability is the floor, not the finish line. A company can be profitable today and still be heading for trouble if its business model is broken or its market is shrinking. The real test is whether those profits are built on a foundation of durable demand or just a temporary reprieve. Let's kick the tires on two examples where the numbers look okay on paper, but the common sense check fails.

Take Cushman & Wakefield. The firm reports a trailing 12-month GAAP operating margin of 3.8%. On the surface, that's a profit. But dig deeper, and the story turns. The company has seen annual sales declines of 2.4% for the past two years. In other words, it's making a profit on less and less business. Its ROIC of 6.4% shows management is struggling to put capital to work effectively. This isn't a company scaling; it's a company shrinking, trying to maintain margins on a declining base. That's a classic sign of a business losing its way.

Then there's Insteel. It's a profitable steel wire maker with a trailing 12-month GAAP operating margin of 4.9%. But its entire business is tied to one cyclical market: construction. The company has seen sales tumble by 13.4% annually over the last two years. That's not a blip; it's a sustained downturn in the core market it serves. When the construction cycle turns, which it inevitably will, Insteel's profits are likely to follow. High margins today don't protect you from a collapsing market tomorrow.

The bottom line is that profits alone are a poor guide. A company can be profitable while its market is dying or its returns on capital are fading. The durable winners are those where the profit is a byproduct of a strong, growing business. When the profit is the main attraction, you're often looking at a company that's already past its peak.

Kicking the Tires: The Real-World Utility and Competitive Threat

The real test of a business isn't its profit margin, but whether its product or service has a durable reason to exist. In a market where most stocks are bad investments, the ones that get left behind are the ones where profitability is the only moat. Let's kick the tires on these two companies.

For Cushman & Wakefield, the problem is clear. The firm is profitable, but its returns on capital are shrinking. That's the common sense alarm bell. When a company's ROIC falls to 6.4%, it means management is struggling to find good ways to deploy its money. In a competitive market, that's a red flag. As Jeff Bezos said, "Your margin is my opportunity." The fact that Cushman's sales have been declining annually while its returns on capital are falling suggests competitors are eating into its profit pools. It's a classic sign of a business model under pressure, where the profit is a temporary reprieve, not a foundation.

Insteel presents a different kind of vulnerability. Its products are essential for concrete construction, a real-world utility that should provide some stability. Yet that very strength is its weakness. The company's entire business is exposed to the health of a single, capital-intensive industry. The recent jump in net margin to 7% is welcome, but it's built on a narrow base. The company's own results show the fragility: shipments decreased 9.7% sequentially from the prior quarter, a typical seasonal slowdown that can quickly become a trend if the construction cycle turns. When the industry faces long downturns, as it inevitably does, Insteel's profits are likely to follow. High margins today don't protect you from a collapsing market tomorrow.

The bottom line is that durability comes from more than just a profit line. It comes from a business that has a reason to grow, not just survive. Cushman is losing ground to competition, and Insteel is betting everything on a single cyclical market. In a sea of underperforming stocks, these are the ones that rely solely on profitability without a moat or growth engine. They might be profitable now, but they're the ones that get left behind.

The Bottom Line: What to Watch and Why These Might Be Avoided

The investment case for both Cushman & Wakefield and Insteel Industries hinges on a simple question: are they building something durable, or just surviving a cycle? The answer points to a clear reason to avoid them.

For Cushman, the key watchpoint is clear. The firm has managed to achieve its fourth consecutive quarter of double-digit Capital markets revenue growth. That's the positive signal. But it's happening alongside annual sales declines of 2.4% for the past two years in its core services business. The real test is whether this capital markets momentum can finally reverse the ROIC trend and offset the declining services revenue. If not, the company is just shifting its profit pools around a shrinking total business. The bottom line is that a profitable firm with a declining market is a business in transition, not a winner.

Insteel's critical factor is the strength of the nonresidential construction cycle. The company's recent results show a powerful margin expansion, with its trailing net margin now at 7%. That's a significant improvement. But this profit is built on a narrow base of demand for concrete reinforcement. The company's own results show the fragility: shipments decreased 9.7% sequentially from the prior quarter, a typical seasonal slowdown. If the construction cycle turns, which it inevitably will, that 7% margin will be quickly exposed. A downturn would quickly erase the gains from pricing and expose the lack of diversification.

The overarching risk for both is that they represent 'good' businesses in 'bad' industries. Cushman is a profitable real estate services firm in a market where its core business is shrinking. Insteel is a well-run steel wire maker in a capital-intensive, cyclical industry. In both cases, success is more about navigating a tough environment than building lasting value. When the industry headwinds shift, as they always do, the profits that look so solid today may not survive. For investors, that's the smell test. A durable winner doesn't just make a profit; it has a reason to grow through the cycle. These two don't yet pass that test.