While profitability is essential, it doesn’t guarantee long-term success. Some companies that rest on their margins will lose ground as competition intensifies - as Jeff Bezos said, "Your margin is my opportunity".
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 that don’t make the cut and some better opportunities instead.
Revolve (RVLV)
Trailing 12-Month GAAP Operating Margin: 4.9%
Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve (NASDAQ: RVLV) is a fashion retailer leveraging social media and a community of fashion influencers to drive its merchandising strategy.
Why Should You Sell RVLV?
- Modest 6.5% annual growth in active customers over the last two years indicates potential challenges in customer acquisition and retention
- Concerning trends in both user engagement and monetization suggest its platform’s efficacy is declining as its average revenue per buyer fell by 1.5% annually
- Earnings per share have dipped by 18% annually over the past three years, which is concerning because stock prices follow EPS over the long term
Revolve’s stock price of $21.64 implies a valuation ratio of 29.6x forward EV/EBITDA. If you’re considering RVLV for your portfolio, see our FREE research report to learn more.
Expeditors (EXPD)
Trailing 12-Month GAAP Operating Margin: 9.9%
Expeditors (NYSE: EXPD) offers air and ocean freight as well as brokerage services.
Why Do We Avoid EXPD?
- Annual sales declines of 5.5% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share have contracted by 4.4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Waning returns on capital imply its previous profit engines are losing steam
At $122.25 per share, Expeditors trades at 23.2x forward P/E. Check out our free in-depth research report to learn more about why EXPD doesn’t pass our bar.
RTX (RTX)
Trailing 12-Month GAAP Operating Margin: 10%
Originally focused on refrigeration technology, Raytheon (NSYE:RTX) provides a a variety of products and services to the aerospace and defense industries.
Why Do We Think Twice About RTX?
- Estimated sales growth of 4.7% for the next 12 months implies demand will slow from its two-year trend
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 4.8% annually
- ROIC of 3.7% reflects management’s challenges in identifying attractive investment opportunities
RTX is trading at $155.67 per share, or 25.2x forward P/E. To fully understand why you should be careful with RTX, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
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