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.
Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. That said, here are three profitable companies to avoid and some better opportunities instead.
Akamai (AKAM)
Trailing 12-Month GAAP Operating Margin: 13%
Founded in 1999 by two engineers from MIT, Akamai (NASDAQ: AKAM) provides software for organizations to efficiently deliver web content to their customers.
Why Do We Avoid AKAM?
- Muted 4.5% annual revenue growth over the last three years shows its demand lagged behind its software peers
- Gross margin of 59.1% reflects its high servicing costs
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
At $75.25 per share, Akamai trades at 2.8x forward price-to-sales. If you’re considering AKAM for your portfolio, see our FREE research report to learn more.
Lovesac (LOVE)
Trailing 12-Month GAAP Operating Margin: 2.4%
Known for its oversized, premium beanbags, Lovesac (NASDAQ: LOVE) is a specialty furniture brand selling modular furniture.
Why Are We Cautious About LOVE?
- 1.7% annual revenue growth over the last two years was slower than its consumer discretionary peers
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Eroding returns on capital suggest its historical profit centers are aging
Lovesac is trading at $18.13 per share, or 5.3x forward EV-to-EBITDA. To fully understand why you should be careful with LOVE, check out our full research report (it’s free).
Sealed Air (SEE)
Trailing 12-Month GAAP Operating Margin: 13.8%
Founded in 1960, Sealed Air Corporation (NYSE: SEE) specializes in the development and production of protective and food packaging solutions, serving a variety of industries.
Why Are We Out on SEE?
- Declining unit sales over the past two years suggest it might have to lower prices to accelerate growth
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Sealed Air’s stock price of $29.27 implies a valuation ratio of 9.6x forward P/E. Read our free research report to see why you should think twice about including SEE in your portfolio.
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