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.

Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. That said, here is one profitable company that balances growth and profitability and two that may struggle to keep up.

Two Stocks to Sell:

Gap (GAP)

Trailing 12-Month GAAP Operating Margin: 7.4%

Operating under the Gap, Old Navy, Banana Republic, and Athleta brands, Gap (NYSE: GAP) is an apparel and accessories retailer selling casual clothing to men, women, and children.

Why Are We Out on GAP?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Poor expense management has led to an operating margin of 5.6% that is below the industry average
3. ROIC of 4.3% reflects management’s challenges in identifying attractive investment opportunities

Gap is trading at $26.25 per share, or 12.1x forward P/E. Read our free research report to see why you should think twice about including GAP in your portfolio.

CBRE (CBRE)

Trailing 12-Month GAAP Operating Margin: 4%

Established in 1906, CBRE (NYSE: CBRE) is one of the largest commercial real estate services firms in the world.

Why Do We Avoid CBRE?

1. Scale is a double-edged sword because it limits the company's growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 8.3% for the last five years
2. Poor free cash flow margin of 2.6% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam

At $130.27 per share, CBRE trades at 21.3x forward P/E. Check out our free in-depth research report to learn more about why CBRE doesn’t pass our bar.

One Stock to Watch:

Anheuser-Busch (BUD)

Trailing 12-Month GAAP Operating Margin: 25.9%

Born out of a complicated web of mergers and acquisitions, Anheuser-Busch InBev (NYSE: BUD) boasts a powerhouse beer portfolio of Budweiser, Stella Artois, Corona, and local favorites around the world.

Why Are We Positive On BUD?

1. Enormous revenue base of $58.85 billion provides significant negotiating leverage in retail partnerships
2. Differentiated product offerings are difficult to replicate at scale and lead to a premier gross margin of 54.7%
3. Excellent operating margin of 25.1% highlights the efficiency of its business model, and its rise over the last year was fueled by some leverage on its fixed costs

Anheuser-Busch’s stock price of $66.17 implies a valuation ratio of 8.1x forward EV-to-EBITDA. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.

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