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.

A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. That said, here are three profitable companies to steer clear of and a few better alternatives.

Monro (MNRO)

Trailing 12-Month GAAP Operating Margin: 3.9%

Started as a single location in Rochester, New York, Monro (NASDAQ: MNRO) provides common auto services such as brake repairs, tire replacements, and oil changes.

Why Do We Steer Clear of MNRO?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
2. Modest revenue base of $1.21 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its decreasing returns suggest its historical profit centers are aging

At $12.90 per share, Monro trades at 13.3x forward P/E. To fully understand why you should be careful with MNRO, check out our full research report (it’s free).

Global Industrial (GIC)

Trailing 12-Month GAAP Operating Margin: 6.2%

Formerly known as Systemax, Global Industrial (NYSE: GIC) distributes industrial and commercial products to businesses and institutions.

Why Do We Avoid GIC?

1. Annual revenue growth of 5.7% over the last four years was below our standards for the industrials sector
2. Incremental sales over the last two years were much less profitable as its earnings per share fell by 6.8% annually while its revenue grew
3. Eroding returns on capital suggest its historical profit centers are aging

Global Industrial is trading at $25.97 per share, or 16.2x forward P/E. Dive into our free research report to see why there are better opportunities than GIC.

BD (BDX)

Trailing 12-Month GAAP Operating Margin: 10.8%

With a history dating back to 1897 and a presence in virtually every hospital around the globe, Becton Dickinson (NYSE: BDX) develops and manufactures medical supplies, devices, laboratory equipment and diagnostic products used by healthcare institutions and professionals worldwide.

Why Does BDX Fall Short?

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 4.1% for the last five years
2. Free cash flow margin dropped by 10.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

BD’s stock price of $172 implies a valuation ratio of 11.2x forward P/E. If you’re considering BDX for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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