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. Keeping that in mind, here are three profitable companies that don’t make the cut and some better opportunities instead.
Mondelez (MDLZ)
Trailing 12-Month GAAP Operating Margin: 12.4%
Founded as Nabisco in 1903, Mondelez (NASDAQ: MDLZ) is a packaged snacks powerhouse best known for its Oreo, Cadbury, Toblerone, Ritz, and Trident brands.
Why Do We Think Twice About MDLZ?
- Flat unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
- Efficiency has decreased over the last year as its operating margin fell by 4.7 percentage points
- Free cash flow margin dropped by 2.3 percentage points over the last year, implying the company became more capital intensive as competition picked up
Mondelez’s stock price of $62.05 implies a valuation ratio of 19.3x forward P/E. To fully understand why you should be careful with MDLZ, check out our full research report (it’s free).
Proto Labs (PRLB)
Trailing 12-Month GAAP Operating Margin: 3.3%
Pioneering the concept of online quoting and manufacturing for custom prototypes and low-volume production parts, Proto Labs (NYSE: PRLB) offers injection molding, 3D printing, and sheet metal fabrication for manufacturers in various industries.
Why Do We Steer Clear of PRLB?
- Annual revenue growth of 2.4% over the last two years was below our standards for the industrials sector
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 7.6 percentage points
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
At $50.11 per share, Proto Labs trades at 33.8x forward P/E. Dive into our free research report to see why there are better opportunities than PRLB.
MGIC Investment (MTG)
Trailing 12-Month GAAP Operating Margin: 79.6%
Founded in 1957 when the modern mortgage insurance industry was in its infancy, MGIC Investment (NYSE: MTG) provides private mortgage insurance that protects lenders when homebuyers default on their loans, enabling borrowers to purchase homes with smaller down payments.
Why Does MTG Give Us Pause?
- Insurance policy sales contracted this cycle as net premiums earned decreased by 1.3% annually over the last five years
- Day-to-day expenses have swelled relative to revenue over the last two years as its combined ratio increased by 10.7 percentage points
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 6.1% annually
MGIC Investment is trading at $27.85 per share, or 1.2x forward P/B. If you’re considering MTG for your portfolio, see our FREE research report to learn more.
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