Even if a company is profitable, it doesn’t always mean it’s a great investment. Some struggle to maintain growth, face looming threats, or fail to reinvest wisely, limiting their future potential.
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 that don’t make the cut and some better opportunities instead.
Cars.com (CARS)
Trailing 12-Month GAAP Operating Margin: 8.1%
Originally started as a joint venture between several media companies including The Washington Post and The New York Times, Cars.com (NYSE: CARS) is a digital marketplace that connects new and used car buyers and sellers.
Why Are We Hesitant About CARS?
- Market opportunities are plateauing as its dealer customers were flat over the last two years
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.6%
- Earnings per share have dipped by 2% annually over the past three years, which is concerning because stock prices follow EPS over the long term
Cars.com’s stock price of $12.90 implies a valuation ratio of 5.6x forward EV/EBITDA. Check out our free in-depth research report to learn more about why CARS doesn’t pass our bar.
Matson (MATX)
Trailing 12-Month GAAP Operating Margin: 14.9%
Founded by a Swedish orphan, Matson (NYSE: MATX) is a provider of ocean transportation and logistics services.
Why Does MATX Fall Short?
- Muted 4.3% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- 8.3 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
- Eroding returns on capital suggest its historical profit centers are aging
At $124.63 per share, Matson trades at 11.4x forward P/E. To fully understand why you should be careful with MATX, check out our full research report (it’s free for active Edge members).
MSCI (MSCI)
Trailing 12-Month GAAP Operating Margin: 54.2%
Originally known as Morgan Stanley Capital International before becoming independent in 2007, MSCI (NYSE: MSCI) provides critical decision support tools, indexes, and analytics that help global investors understand risk and return factors and build more effective investment portfolios.
Why Do We Think Twice About MSCI?
- Negative return on equity shows management lost money while trying to expand the business
MSCI is trading at $566.00 per share, or 30x forward P/E. Dive into our free research report to see why there are better opportunities than MSCI.
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