Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. That said, here are three profitable companies to steer clear of and a few better alternatives.
YETI (YETI)
Trailing 12-Month GAAP Operating Margin: 12%
Founded by two brothers from Texas, YETI (NYSE:YETI) specializes in durable outdoor goods including coolers, drinkware, and other gear tailored to adventure enthusiasts.
Why Is YETI Not Exciting?
- Annual revenue growth of 6.6% over the last two years was below our standards for the consumer discretionary sector
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 9.7 percentage points over the next year
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $36.01 per share, YETI trades at 13.7x forward P/E. Check out our free in-depth research report to learn more about why YETI doesn’t pass our bar.
Casella Waste Systems (CWST)
Trailing 12-Month GAAP Operating Margin: 3.9%
Starting with the founder picking up garbage with a pickup truck he purchased using savings from high school, Casella (NASDAQ:CWST) offers waste management services for businesses, residents, and the government.
Why Do We Think Twice About CWST?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 5 percentage points
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its falling returns suggest its earlier profit pools are drying up
Casella Waste Systems’s stock price of $89.54 implies a valuation ratio of 72x forward P/E. To fully understand why you should be careful with CWST, check out our full research report (it’s free for active Edge members).
Kforce (KFRC)
Trailing 12-Month GAAP Operating Margin: 4.3%
With nearly 60 years of matching skilled professionals with the right opportunities, Kforce (NYSE:KFRC) is a professional staffing company that specializes in placing technology and finance experts with businesses on both temporary and permanent bases.
Why Should You Dump KFRC?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Earnings per share have dipped by 1.4% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Eroding returns on capital suggest its historical profit centers are aging
Kforce is trading at $30.10 per share, or 13.9x forward P/E. If you’re considering KFRC for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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