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.
Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. That said, here are three profitable companies to steer clear of and a few better alternatives.
Polaris (PII)
Trailing 12-Month GAAP Operating Margin: 3.2%
Founded in 1954, Polaris (NYSE: PII) designs and manufactures high-performance off-road vehicles, snowmobiles, and motorcycles.
Why Should You Sell PII?
- Products and services aren't resonating with the market as its revenue declined by 11.6% annually over the last two years
- Earnings per share fell by 27.4% annually over the last five years while its revenue was flat, showing each sale was less profitable
- Diminishing returns on capital suggest its earlier profit pools are drying up
Polaris is trading at $52.22 per share, or 34.7x forward P/E. If you’re considering PII for your portfolio, see our FREE research report to learn more.
Columbus McKinnon (CMCO)
Trailing 12-Month GAAP Operating Margin: 7.9%
With 19 different brands across the globe, Columbus McKinnon (NASDAQ: CMCO) offers material handling equipment for the construction, manufacturing, and transportation industries.
Why Should You Dump CMCO?
- Annual revenue growth of 1.4% over the last two years was below our standards for the industrials sector
- Earnings per share fell by 1% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- 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
Columbus McKinnon’s stock price of $15.60 implies a valuation ratio of 5.8x forward P/E. To fully understand why you should be careful with CMCO, check out our full research report (it’s free).
FARO (FARO)
Trailing 12-Month GAAP Operating Margin: 4.6%
Launched by two PhD students in a garage, FARO (NASDAQ: FARO) provides 3D measurement and imaging systems for the manufacturing, construction, engineering, and public safety industries.
Why Are We Hesitant About FARO?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.5% annually over the last five years
- Historical operating margin losses point to an inefficient cost structure
- Cash burn makes us question whether it can achieve sustainable long-term growth
At $44 per share, FARO trades at 39.6x forward P/E. Dive into our free research report to see why there are better opportunities than FARO.
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