Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
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 to avoid and some better opportunities instead.
Bloomin' Brands (BLMN)
Trailing 12-Month GAAP Operating Margin: 3.3%
Owner of the iconic Australian-themed Outback Steakhouse, Bloomin’ Brands (NASDAQ: BLMN) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.
Why Do We Steer Clear of BLMN?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new diners into its restaurants
- Forecasted revenue decline of 5.7% for the upcoming 12 months implies demand will fall off a cliff
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Bloomin' Brands’s stock price of $9.42 implies a valuation ratio of 7.3x forward P/E. Read our free research report to see why you should think twice about including BLMN in your portfolio.
The Cheesecake Factory (CAKE)
Trailing 12-Month GAAP Operating Margin: 5.4%
Celebrated for its delicious (and free) brown bread, gigantic portions, and delectable desserts, Cheesecake Factory (NASDAQ: CAKE) is an iconic American restaurant chain that also owns and operates a portfolio of separate restaurant brands.
Why Does CAKE Give Us Pause?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $64.16 per share, The Cheesecake Factory trades at 16x forward P/E. If you’re considering CAKE for your portfolio, see our FREE research report to learn more.
Ibotta (IBTA)
Trailing 12-Month GAAP Operating Margin: 2.5%
Originally launched as a way to make grocery shopping more rewarding for budget-conscious consumers, Ibotta (NYSE: IBTA) is a mobile shopping app that allows consumers to earn cash back on everyday purchases by completing tasks and submitting receipts.
Why Are We Hesitant About IBTA?
- Modest revenue base of $369.5 million gives it less fixed cost leverage and fewer distribution channels than larger companies
Ibotta is trading at $36.51 per share, or 11.8x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why IBTA doesn’t pass our bar.
Stocks We Like More
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