Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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 two profitable companies that leverage their financial strength to beat the competition and one that may face some trouble.
One Stock to Sell:
Packaging Corporation of America (PKG)
Trailing 12-Month GAAP Operating Margin: 14.1%
Founded in 1959, Packaging Corporation of America (NYSE: PKG) produces containerboard and corrugated packaging products as well as displays and package protection.
Why Does PKG Give Us Pause?
- 5.7% annual revenue growth over the last five years was slower than its industrials peers
- Gross margin of 22.8% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Diminishing returns on capital suggest its earlier profit pools are drying up
Packaging Corporation of America’s stock price of $201.81 implies a valuation ratio of 18.9x forward P/E. Read our free research report to see why you should think twice about including PKG in your portfolio.
Two Stocks to Watch:
Pinterest (PINS)
Trailing 12-Month GAAP Operating Margin: 6.9%
Created with the idea of virtually replacing paper catalogues, Pinterest (NYSE: PINS) is an online image and social discovery platform.
Why Is PINS a Top Pick?
- Monthly Active Users are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features
- Excellent EBITDA margin of 28.3% highlights the efficiency of its business model, and its operating leverage amplified its profits over the last few years
- Strong free cash flow margin of 27.4% enables it to reinvest or return capital consistently, and its improved cash conversion implies it’s becoming a less capital-intensive business
At $25.95 per share, Pinterest trades at 11.1x forward EV/EBITDA. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
Parsons (PSN)
Trailing 12-Month GAAP Operating Margin: 6.4%
Delivering aerospace technology during the Cold War-era, Parsons (NYSE: PSN) offers engineering, construction, and cybersecurity solutions for the infrastructure and defense sectors.
Why Does PSN Stand Out?
- Market share has increased this cycle as its 13.4% annual revenue growth over the last two years was exceptional
- Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Share buybacks catapulted its annual earnings per share growth to 19%, which outperformed its revenue gains over the last two years
Parsons is trading at $60.74 per share, or 18.5x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free for active Edge members .
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