Even if a company is profitable, it doesn’t always mean it’s a great investment. Some struggle to maintain growth, face looming threats, or fail to reinvest wisely, limiting their future potential.
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 are three profitable companies that don’t make the cut and some better opportunities instead.
Floor And Decor (FND)
Trailing 12-Month GAAP Operating Margin: 5.9%
Operating large, warehouse-style stores, Floor & Decor (NYSE:FND) is a specialty retailer that specializes in hard flooring surfaces for the home such as tiles, hardwood, stone, and laminates.
Why Is FND Risky?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Earnings per share fell by 8.3% annually over the last three years while its revenue grew, showing its incremental sales were much less profitable
- ROIC of 8.8% reflects management’s challenges in identifying attractive investment opportunities, and its decreasing returns suggest its historical profit centers are aging
Floor And Decor’s stock price of $62.47 implies a valuation ratio of 31.3x forward P/E. To fully understand why you should be careful with FND, check out our full research report (it’s free for active Edge members).
Gibraltar (ROCK)
Trailing 12-Month GAAP Operating Margin: 12.8%
Gibraltar (NASDAQ:ROCK) makes renewable energy, agriculture technology and infrastructure products. Its mission statement is to make everyday living more sustainable.
Why Are We Cautious About ROCK?
- Annual sales declines of 7.4% for the past two years show its products and services struggled to connect with the market during this cycle
- Estimated sales growth of 4% for the next 12 months is soft and implies weaker demand
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 3.1% annually
Gibraltar is trading at $51.91 per share, or 11.2x forward P/E. Check out our free in-depth research report to learn more about why ROCK doesn’t pass our bar.
West Pharmaceutical Services (WST)
Trailing 12-Month GAAP Operating Margin: 19.5%
Founded in 1923 and serving as a critical link in the pharmaceutical supply chain, West Pharmaceutical Services (NYSE:WST) manufactures specialized packaging, containment systems, and delivery devices for injectable drugs and healthcare products.
Why Is WST Not Exciting?
- Muted 1.5% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 5.5 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $273.32 per share, West Pharmaceutical Services trades at 35.8x forward P/E. If you’re considering WST for your portfolio, see our FREE research report to learn more.
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