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.
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. That said, here are three profitable companies that don’t make the cut and some better opportunities instead.
Frontdoor (FTDR)
Trailing 12-Month GAAP Operating Margin: 19.2%
Established in 2018 as a spin-off from ServiceMaster Global Holdings, Frontdoor (NASDAQ: FTDR) is a provider of home warranty and service plans.
Why Are We Cautious About FTDR?
- Annual revenue growth of 6.8% over the last five years was below our standards for the consumer discretionary sector
- Performance surrounding its home service plans has lagged its peers
- Projected sales growth of 8.6% for the next 12 months suggests sluggish demand
Frontdoor is trading at $54.88 per share, or 15.2x forward P/E. If you’re considering FTDR for your portfolio, see our FREE research report to learn more.
Regal Rexnord (RRX)
Trailing 12-Month GAAP Operating Margin: 11%
Headquartered in Milwaukee, Regal Rexnord (NYSE: RRX) provides power transmission and industrial automation products.
Why Are We Hesitant About RRX?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Earnings per share have contracted by 3.1% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
At $139.10 per share, Regal Rexnord trades at 12.9x forward P/E. Read our free research report to see why you should think twice about including RRX in your portfolio.
Vontier (VNT)
Trailing 12-Month GAAP Operating Margin: 18%
A spin-off of a spin-off, Vontier (NYSE: VNT) provides electronic products and systems to the transportation, automotive, and manufacturing sectors.
Why Are We Out on VNT?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Free cash flow margin shrank by 7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Vontier’s stock price of $40.55 implies a valuation ratio of 12.4x forward P/E. Dive into our free research report to see why there are better opportunities than VNT.
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