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. That said, here are three profitable companies that don’t make the cut and some better opportunities instead.
Pilgrim's Pride (PPC)
Trailing 12-Month GAAP Operating Margin: 9.2%
Offering everything from pre-marinated to frozen chicken, Pilgrim’s Pride (NASDAQ: PPC) produces, processes, and distributes chicken products to retailers and food service customers.
Why Does PPC Worry Us?
- Sizable revenue base leads to growth challenges as its 4.5% annual revenue increases over the last three years fell short of other consumer staples companies
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
- Easily substituted products (and therefore stiff competition) result in an inferior gross margin of 10.7% that must be offset through higher volumes
Pilgrim's Pride is trading at $47.40 per share, or 9.5x forward P/E. Read our free research report to see why you should think twice about including PPC in your portfolio.
Light & Wonder (LNW)
Trailing 12-Month GAAP Operating Margin: 21%
With names as crazy as Ultimate Fire Link Power 4 for its products, Light & Wonder (NASDAQ: LNW) is a gaming company supplying the casino industry with slot machines, table games, and digital games.
Why Are We Hesitant About LNW?
- Products and services fail to spark excitement with consumers, as seen in its flat sales over the last five years
- Estimated sales growth of 9.1% for the next 12 months implies demand will slow from its two-year trend
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Light & Wonder’s stock price of $84.50 implies a valuation ratio of 14.3x forward P/E. To fully understand why you should be careful with LNW, check out our full research report (it’s free).
Mayville Engineering (MEC)
Trailing 12-Month GAAP Operating Margin: 6.9%
Originally founded solely on tool and die manufacturing, Mayville Engineering Company (NYSE: MEC) specializes in metal fabrication, tube bending, and welding to be used in various industries.
Why Do We Think MEC Will Underperform?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 12.5%
- Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 11.1% annually
At $15.40 per share, Mayville Engineering trades at 4.8x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why MEC doesn’t pass our bar.
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