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. Keeping that in mind, here is one profitable company that balances growth and profitability and two best left off your watchlist.
Two Stocks to Sell:
Custom Truck One Source (CTOS)
Trailing 12-Month GAAP Operating Margin: 6.6%
Inspired by a family gas station, Custom Truck One Source (NYSE: CTOS) is a distributor of trucks and heavy equipment.
Why Is CTOS Risky?
- Sales trends were unexciting over the last two years as its 4.6% annual growth was below the typical industrials company
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 29.2 percentage points
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Custom Truck One Source is trading at $4.10 per share, or 55.8x forward P/E. Read our free research report to see why you should think twice about including CTOS in your portfolio.
Gilead Sciences (GILD)
Trailing 12-Month GAAP Operating Margin: 28.6%
From its groundbreaking work in developing the first single-tablet regimens for HIV treatment, Gilead Sciences (NASDAQ: GILD) develops and markets innovative medicines for life-threatening diseases including HIV, viral hepatitis, COVID-19, and cancer.
Why Does GILD Give Us Pause?
- Sizable revenue base leads to growth challenges as its 3.1% annual revenue increases over the last two years fell short of other healthcare companies
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $103.68 per share, Gilead Sciences trades at 12.6x forward P/E. Dive into our free research report to see why there are better opportunities than GILD.
One Stock to Watch:
Veeva Systems (VEEV)
Trailing 12-Month GAAP Operating Margin: 25.2%
Built on top of Salesforce as one of the first vertical-focused cloud platforms, Veeva (NYSE: VEEV) provides data and customer relationship management (CRM) software for organizations in the life sciences industry.
Why Does VEEV Catch Our Eye?
- Software platform has product-market fit given the rapid recovery of its customer acquisition costs
- Disciplined cost controls and effective management resulted in a strong trailing 12-month operating margin of 25.2%, and its profits increased over the last year as it scaled
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
Veeva Systems’s stock price of $236.50 implies a valuation ratio of 12.9x forward price-to-sales. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. 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 United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.
