A company with profits isn’t always a great investment. Some struggle to maintain growth, face looming threats, or fail to reinvest wisely, limiting their future potential.

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 three profitable companies that don’t make the cut and some better opportunities instead.

eHealth (EHTH)

Trailing 12-Month GAAP Operating Margin: 8.4%

Aiming to address a high-stakes and often confusing decision, eHealth (NASDAQ: EHTH) guides consumers through health insurance enrollment and related topics.

Why Is EHTH Not Exciting?

1. Estimated Membership have declined by 1.8% annually over the last two years, suggesting it may need to revamp its features or user experience to stay competitive
2. Projected sales decline of 3.4% for the next 12 months points to a tough demand environment ahead
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

eHealth’s stock price of $5.04 implies a valuation ratio of 3.3x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than EHTH.

L.B. Foster (FSTR)

Trailing 12-Month GAAP Operating Margin: 2.9%

Founded with a $2,500 loan, L.B. Foster (NASDAQ: FSTR) is a provider of products and services for the transportation and energy infrastructure sectors, including rail products, construction materials, and coating solutions.

Why Are We Out on FSTR?

1. Sales tumbled by 2.3% annually over the last five years, showing market trends are working against its favor during this cycle
2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
3. Underwhelming 4.7% return on capital reflects management’s difficulties in finding profitable growth opportunities

At $19.26 per share, L.B. Foster trades at 4.6x forward EV-to-EBITDA. To fully understand why you should be careful with FSTR, check out our full research report (it’s free).

Northrop Grumman (NOC)

Trailing 12-Month GAAP Operating Margin: 9.6%

Responsible for the development of the first stealth bomber, Northrop Grumman (NYSE: NOC) specializes in providing aerospace, defense, and security solutions for various industry applications.

Why Is NOC Risky?

1. 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
2. 6 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
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Northrop Grumman is trading at $476.04 per share, or 16.5x forward P/E. Read our free research report to see why you should think twice about including NOC in your portfolio.

Stocks We Like More

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