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. That said, here are three profitable companies to steer clear of and a few better alternatives.
Wynn Resorts (WYNN)
Trailing 12-Month GAAP Operating Margin: 14.8%
Founded by the former Mirage Resorts CEO, Wynn Resorts (NASDAQ: WYNN) is a global developer and operator of high-end hotels and casinos, known for its luxurious properties and premium guest services.
Why Are We Wary of WYNN?
- 9.9% annual revenue growth over the last five years was slower than its consumer discretionary peers
- ROIC of 4% reflects management’s challenges in identifying attractive investment opportunities
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Wynn Resorts is trading at $119.63 per share, or 23.3x forward P/E. Check out our free in-depth research report to learn more about why WYNN doesn’t pass our bar.
Latham (SWIM)
Trailing 12-Month GAAP Operating Margin: 3.9%
Started as a family business, Latham (NASDAQ: SWIM) is a global designer and manufacturer of in-ground residential swimming pools and related products.
Why Are We Hesitant About SWIM?
- Sales tumbled by 7.7% annually over the last two years, showing consumer trends are working against its favor
- Subpar operating margin of 4.5% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- ROIC of 0.1% reflects management’s challenges in identifying attractive investment opportunities
Latham’s stock price of $7.25 implies a valuation ratio of 53.9x forward P/E. If you’re considering SWIM for your portfolio, see our FREE research report to learn more.
Owens Corning (OC)
Trailing 12-Month GAAP Operating Margin: 10.8%
Credited with the discovery of fiberglass, Owens Corning (NYSE: OC) supplies building and construction materials to the United States and international markets.
Why Do We Think Twice About OC?
- 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
- 7.4 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
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $126.91 per share, Owens Corning trades at 9.4x forward P/E. Check out our free in-depth research report to learn more about why OC doesn’t pass our bar.
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