Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
MGM Resorts (MGM)
Trailing 12-Month GAAP Operating Margin: 5.6%
Operating several properties on the Las Vegas Strip, MGM Resorts (NYSE:MGM) is a global hospitality and entertainment company known for its resorts and casinos.
Why Do We Think MGM Will Underperform?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 6% over the last two years was below our standards for the consumer discretionary sector
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- High net-debt-to-EBITDA ratio of 13× could force the company to raise capital at unfavorable terms if market conditions deteriorate
MGM Resorts is trading at $31.84 per share, or 14.1x forward P/E. Dive into our free research report to see why there are better opportunities than MGM.
Jacobs Solutions (J)
Trailing 12-Month GAAP Operating Margin: 7.2%
With a workforce of approximately 45,000 professionals tackling complex challenges from water scarcity to cybersecurity, Jacobs Solutions (NYSE:J) provides engineering, consulting, and technical services focused on infrastructure, sustainability, and advanced technology solutions.
Why Should You Dump J?
- Sales tumbled by 2.5% annually over the last five years, showing market trends are working against its favor during this cycle
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Underwhelming 7.6% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $152.31 per share, Jacobs Solutions trades at 22.4x forward P/E. Check out our free in-depth research report to learn more about why J doesn’t pass our bar.
Knight-Swift Transportation (KNX)
Trailing 12-Month GAAP Operating Margin: 3.6%
Covering 1.6 billion loaded miles in 2023 alone, Knight-Swift Transportation (NYSE:KNX) offers less-than-truckload and full truckload delivery services.
Why Do We Avoid KNX?
- Annual revenue growth of 3.7% over the last two years was below our standards for the industrials sector
- 10.8 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Knight-Swift Transportation’s stock price of $44.34 implies a valuation ratio of 24.8x forward P/E. If you’re considering KNX for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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