Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. Keeping that in mind, here are three profitable companies to avoid and some better opportunities instead.
AECOM (ACM)
Trailing 12-Month GAAP Operating Margin: 6.4%
Founded in 1990 when a group of engineers from five companies decided to merge, AECOM (NYSE: ACM) provides various infrastructure consulting services.
Why Does ACM Worry Us?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 2% decline in its backlog
- High input costs result in an inferior gross margin of 6.6% that must be offset through higher volumes
- Subpar operating margin of 4.5% constrains its ability to invest in process improvements or effectively respond to new competitive threats
AECOM is trading at $131.62 per share, or 24.7x forward P/E. If you’re considering ACM for your portfolio, see our FREE research report to learn more.
CooperCompanies (COO)
Trailing 12-Month GAAP Operating Margin: 18.3%
With a history dating back to 1958 and a portfolio spanning two distinct healthcare segments, Cooper Companies (NASDAQ: COO) develops and manufactures medical devices focused on vision care through contact lenses and women's health including fertility products and services.
Why Are We Wary of COO?
- Muted 7.3% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- 8.3 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Underwhelming 5.1% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $67.20 per share, CooperCompanies trades at 15.5x forward P/E. To fully understand why you should be careful with COO, check out our full research report (it’s free).
Chemed (CHE)
Trailing 12-Month GAAP Operating Margin: 14.7%
With a unique business model combining end-of-life care and household services, Chemed (NYSE: CHE) operates two distinct businesses: VITAS, which provides hospice care for terminally ill patients, and Roto-Rooter, which offers plumbing and water restoration services.
Why Does CHE Fall Short?
- Muted 4.4% annual revenue growth over the last five years shows its demand lagged behind its healthcare peers
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 2.7 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Chemed’s stock price of $458.25 implies a valuation ratio of 18.3x forward P/E. Check out our free in-depth research report to learn more about why CHE doesn’t pass our bar.
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