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".
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. That said, here are three profitable companies to avoid and some better opportunities instead.
onsemi (ON)
Trailing 12-Month GAAP Operating Margin: 4.7%
Spun out of Motorola in 1999 and built through a series of acquisitions, onsemi (NASDAQ: ON) is a global provider of analog chips specializing in autos, industrial applications, and power management in cloud data centers.
Why Is ON Not Exciting?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 13.9% annually over the last two years
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Gross margin of 41.2% reflects its high production costs
onsemi is trading at $46.94 per share, or 16.6x forward P/E. To fully understand why you should be careful with ON, check out our full research report (it’s free for active Edge members).
America's Car-Mart (CRMT)
Trailing 12-Month GAAP Operating Margin: 6.3%
With a strong presence in the Southern and Central US, America’s Car-Mart (NASDAQ: CRMT) sells used cars to budget-conscious consumers.
Why Do We Avoid CRMT?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens
America's Car-Mart’s stock price of $20.38 implies a valuation ratio of 8.3x forward P/E. Dive into our free research report to see why there are better opportunities than CRMT.
Orion (ORN)
Trailing 12-Month GAAP Operating Margin: 2%
Established in 1994, Orion (NYSE: ORN) provides construction services for marine infrastructure and industrial projects.
Why Is ORN Risky?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 1.7% declines over the past two years
- Issuance of new shares over the last five years caused its earnings per share to fall by 3.8% annually while its revenue grew
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.7% for the last five years
At $8.93 per share, Orion trades at 33.5x forward P/E. If you’re considering ORN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
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