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Is it Profitable to Invest in Profitable Firms?

Comparing stocks with positive versus negative earnings.

Abhik Roy, CFA
10 min read
17 Feb 2025

SUMMARY

  • The profitability of U.S. stocks has declined over the last two decades
  • The number of unprofitable companies has increased
  • Profitability is a complex stock selection metric on a stand-alone basis

INTRODUCTION

Investing is often seen as both an art and a science. While there are no absolute laws like gravity, certain time-tested principles—such as value investing—have proven effective over the long run. Another common strategy is focusing on high-quality stocks, particularly those with strong earnings. While definitions of “quality earnings” may vary, many investors start by avoiding unprofitable companies.

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