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".
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. Keeping that in mind, here are three profitable companies that don’t make the cut and some better opportunities instead.
Kimberly-Clark (KMB)
Trailing 12-Month GAAP Operating Margin: 15.8%
Originally founded as a Wisconsin paper mill in 1872, Kimberly-Clark (NYSE: KMB) is now a household products powerhouse known for personal care and tissue products.
Why Are We Wary of KMB?
- Flat sales over the last three years suggest it must innovate and find new ways to grow
- Flat unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Forecasted revenue decline of 3.1% for the upcoming 12 months implies demand will fall off a cliff
Kimberly-Clark is trading at $126.97 per share, or 16.7x forward P/E. Read our free research report to see why you should think twice about including KMB in your portfolio.
Marriott Vacations (VAC)
Trailing 12-Month GAAP Operating Margin: 9.7%
Spun off from Marriott International in 1984, Marriott Vacations (NYSE: VAC) is a vacation company providing leisure experiences for travelers around the world.
Why Are We Out on VAC?
- Number of conducted tours has disappointed over the past two years, indicating weak demand for its offerings
- Low returns on capital reflect management’s struggle to allocate funds effectively
- High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Marriott Vacations’s stock price of $79.61 implies a valuation ratio of 11.8x forward P/E. If you’re considering VAC for your portfolio, see our FREE research report to learn more.
Timken (TKR)
Trailing 12-Month GAAP Operating Margin: 12.6%
Established after the founder noticed the difficulty freight wagons had making sharp turns, Timken (NYSE: TKR) is a provider of industrial parts used across various sectors.
Why Is TKR Risky?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Sales are projected to be flat over the next 12 months and imply weak demand
- Sales were less profitable over the last two years as its earnings per share fell by 8.7% annually, worse than its revenue declines
At $78.63 per share, Timken trades at 13.9x forward P/E. Dive into our free research report to see why there are better opportunities than TKR.
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