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.
Dollar Tree (DLTR)
Trailing 12-Month GAAP Operating Margin: 7.1%
A treasure hunt because there’s no guarantee of consistent product selection, Dollar Tree (NASDAQ: DLTR) is a discount retailer that sells general merchandise and select packaged food at extremely low prices.
Why Do We Think Twice About DLTR?
- Sales tumbled by 1.1% annually over the last six years, showing consumer trends are working against its favor
- Sales are projected to tank by 8.7% over the next 12 months as its demand continues evaporating
- Underwhelming 9.7% return on capital reflects management’s difficulties in finding profitable growth opportunities
Dollar Tree is trading at $87.95 per share, or 14.8x forward P/E. If you’re considering DLTR for your portfolio, see our FREE research report to learn more.
Flex (FLEX)
Trailing 12-Month GAAP Operating Margin: 4.8%
Originally known as Flextronics until its 2016 rebranding, Flex (NASDAQ: FLEX) is a global manufacturing partner that designs, engineers, and builds products for companies across industries from medical devices to solar trackers.
Why Does FLEX Fall Short?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 4.2% annually over the last two years
- Anticipated sales growth of 3% for the next year implies demand will be shaky
- Low free cash flow margin of 2.7% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $57.81 per share, Flex trades at 18.5x forward P/E. Read our free research report to see why you should think twice about including FLEX in your portfolio.
Assured Guaranty (AGO)
Trailing 12-Month GAAP Operating Margin: 49.8%
Serving as a financial safety net for over $11 trillion in debt service payments since its founding in 2003, Assured Guaranty (NYSE: AGO) provides credit protection products that guarantee scheduled payments on municipal bonds, infrastructure projects, and structured finance obligations.
Why Do We Avoid AGO?
- Net premiums earned contracted by 4.3% annually over the last five years, showing unfavorable market dynamics this cycle
- Forecasted revenue decline of 29.8% for the upcoming 12 months implies demand will fall even further
- ROE of 7.7% reflects management’s challenges in identifying attractive investment opportunities
Assured Guaranty’s stock price of $80.51 implies a valuation ratio of 0.7x forward P/B. To fully understand why you should be careful with AGO, check out our full research report (it’s free for active Edge members).
Stocks We Like More
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