Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
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 to avoid and some better opportunities instead.
Wendy's (WEN)
Trailing 12-Month GAAP Operating Margin: 17%
Founded by Dave Thomas in 1969, Wendy’s (NASDAQ: WEN) is a renowned fast-food chain known for its fresh, never-frozen beef burgers, flavorful menu options, and commitment to quality.
Why Is WEN Not Exciting?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- Projected sales decline of 2.3% for the next 12 months points to a tough demand environment ahead
- 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $8.88 per share, Wendy's trades at 10.3x forward P/E. If you’re considering WEN for your portfolio, see our FREE research report to learn more.
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 Does MDLZ Give Us Pause?
- Flat unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
- Efficiency has decreased over the last year as its operating margin fell by 4.7 percentage points
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 2.3 percentage points
Mondelez is trading at $62.46 per share, or 19.4x forward P/E. Read our free research report to see why you should think twice about including MDLZ in your portfolio.
ICF International (ICFI)
Trailing 12-Month GAAP Operating Margin: 8.1%
Operating at the intersection of policy, technology, and implementation for over five decades, ICF International (NASDAQ: ICFI) provides professional consulting services and technology solutions to government agencies and commercial clients across energy, health, environment, and security sectors.
Why Should You Sell ICFI?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 1.2% declines over the past two years
- Sales are projected to tank by 2.3% over the next 12 months as demand evaporates
- Low returns on capital reflect management’s struggle to allocate funds effectively
ICF International’s stock price of $87.40 implies a valuation ratio of 12.5x forward P/E. To fully understand why you should be careful with ICFI, check out our full research report (it’s free for active Edge members).
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