Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. Keeping that in mind, here are three profitable companies to avoid and some better opportunities instead.
Gray Television (GTN)
Trailing 12-Month GAAP Operating Margin: 21.1%
Specializing in local media coverage, Gray Television (NYSE: GTN) is a broadcast company supplying digital media to various markets in the United States.
Why Do We Think GTN Will Underperform?
- Products and services fail to spark excitement with consumers, as seen in its flat sales over the last two years
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 5.7 percentage points
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Gray Television’s stock price of $5.28 implies a valuation ratio of 0.7x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why GTN doesn’t pass our bar.
Oshkosh (OSK)
Trailing 12-Month GAAP Operating Margin: 9.2%
Oshkosh (NYSE: OSK) manufactures specialty vehicles for the defense, fire, emergency, and commercial industry, operating various brand subsidiaries within each industry.
Why Does OSK Give Us Pause?
- Sales pipeline suggests its future revenue growth may not meet our standards as its average backlog growth of 1.3% for the past two years was weak
- High input costs result in an inferior gross margin of 16.4% that must be offset through higher volumes
- Free cash flow margin shrank by 7.3 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $139.27 per share, Oshkosh trades at 11.4x forward P/E. Dive into our free research report to see why there are better opportunities than OSK.
Thermo Fisher (TMO)
Trailing 12-Month GAAP Operating Margin: 17.1%
With over 14,000 sales personnel and a portfolio spanning more than 2,500 technology manufacturers, Thermo Fisher Scientific (NYSE: TMO) provides scientific equipment, reagents, consumables, software, and laboratory services to pharmaceutical, biotech, academic, and healthcare customers worldwide.
Why Does TMO Worry Us?
- 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
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 10.2 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
Thermo Fisher is trading at $529 per share, or 22.9x forward P/E. If you’re considering TMO for your portfolio, see our FREE research report to learn more.
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