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 is one profitable company that generates reliable profits without sacrificing growth and two that may struggle to keep up.
Two Stocks to Sell:
Agilysys (AGYS)
Trailing 12-Month GAAP Operating Margin: 7.9%
Originally a subsidiary of Pioneer-Standard Electronics that distributed electronic components, Agilysys (NASDAQ: AGYS) offers a software-as-service platform that helps hotels, resorts, restaurants, and other hospitality businesses manage their operations and workflows.
Why Are We Hesitant About AGYS?
- High servicing costs result in a relatively inferior gross margin of 62.7% that must be offset through increased usage
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 4.6 percentage points over the next year
Agilysys’s stock price of $75.78 implies a valuation ratio of 6.9x forward price-to-sales. If you’re considering AGYS for your portfolio, see our FREE research report to learn more.
Gray Television (GTN)
Trailing 12-Month GAAP Operating Margin: 23.4%
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 Pass on GTN?
- Flat sales over the last two years suggest it must innovate and find new ways to grow
- Estimated sales decline of 12.6% for the next 12 months implies an even more challenging demand environment
- Projected 9.9 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
At $3.35 per share, Gray Television trades at 0.5x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why GTN doesn’t pass our bar.
One Stock to Watch:
Cadence (CDNS)
Trailing 12-Month GAAP Operating Margin: 30%
With the name chosen to reflect the idea of a repeating pattern or rhythm in electronic design, Cadence Design Systems (NASDAQ: CDNS) offers a software-as-a-service platform for semiconductor engineering and design.
Why Should CDNS Be on Your Watchlist?
- Billings have averaged 24% growth over the last year, showing it’s securing new contracts that could potentially increase in value over time
- Superior software functionality and low servicing costs result in a best-in-class gross margin of 85.9%
- Well-designed software integrates seamlessly with other workflows, enabling swift payback periods on marketing expenses and customer growth at scale
Cadence is trading at $299.08 per share, or 15.3x forward price-to-sales. Is now a good time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even 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.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
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 Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
