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 avoid and some better opportunities instead.
Kratos (KTOS)
Trailing 12-Month GAAP Operating Margin: 2.6%
Established with a commitment to supporting national security, Kratos (NASDAQ: KTOS) is a provider of advanced engineering, technology, and security solutions tailored for critical national security applications.
Why Does KTOS Worry Us?
- Long-term business health is up for debate as its cash burn has increased over the last five years
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its falling returns suggest its earlier profit pools are drying up
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Kratos’s stock price of $33.59 implies a valuation ratio of 58x forward price-to-earnings. If you’re considering KTOS for your portfolio, see our FREE research report to learn more.
Thermo Fisher (TMO)
Trailing 12-Month GAAP Operating Margin: 17.2%
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 Are We Hesitant About TMO?
- 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
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 10 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $420 per share, Thermo Fisher trades at 17.8x forward price-to-earnings. To fully understand why you should be careful with TMO, check out our full research report (it’s free).
Amneal (AMRX)
Trailing 12-Month GAAP Operating Margin: 8.9%
Founded in 2002 and growing into one of America's largest generic drug producers, Amneal Pharmaceuticals (NASDAQ: AMRX) develops, manufactures, and distributes generic medicines, specialty branded drugs, biosimilars, and injectable products for the U.S. healthcare market.
Why Does AMRX Fall Short?
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.5 percentage points
- Underwhelming 2.4% return on capital reflects management’s difficulties in finding profitable growth opportunities
Amneal is trading at $7.76 per share, or 10.1x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than AMRX.
Stocks We Like More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
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Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.
