While profitability is essential, it doesn’t guarantee long-term success. Some companies that rest on their margins will lose ground as competition intensifies - as Jeff Bezos said, "Your margin is my opportunity".
Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. Keeping that in mind, here are three profitable companies that don’t make the cut and some better opportunities instead.
Alta (ALTG)
Trailing 12-Month GAAP Operating Margin: 1.1%
Founded in 1984, Alta Equipment Group (NYSE:ALTG) is a provider of industrial and construction equipment and services across the Midwest and Northeast United States.
Why Should You Dump ALTG?
- 1.1% annual revenue growth over the last two years was slower than its industrials peers
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Alta’s stock price of $6.06 implies a valuation ratio of 6.3x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than ALTG.
Watsco (WSO)
Trailing 12-Month GAAP Operating Margin: 10.2%
Originally a manufacturing company, Watsco (NYSE:WSO) today only distributes air conditioning, heating, and refrigeration equipment, as well as related parts and supplies.
Why Do We Avoid WSO?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 4.2% annually while its revenue grew
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Watsco is trading at $377.00 per share, or 30.1x forward P/E. To fully understand why you should be careful with WSO, check out our full research report (it’s free).
IAC (IAC)
Trailing 12-Month GAAP Operating Margin: 2.6%
Originally known as InterActiveCorp and built through Barry Diller's strategic acquisitions since the 1990s, IAC (NASDAQ:IAC) operates a portfolio of category-leading digital businesses including Dotdash Meredith, Angi, and Care.com, focusing on digital publishing, home services, and caregiving platforms.
Why Do We Pass on IAC?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 15% annually over the last two years
- Earnings per share have dipped by 19.6% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Push for growth has led to negative returns on capital, signaling value destruction
At $38.87 per share, IAC trades at 27.5x forward P/E. If you’re considering IAC for your portfolio, see our FREE research report to learn more.
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