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. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.
Dine Brands (DIN)
Trailing 12-Month GAAP Operating Margin: 21%
Operating a franchise model, Dine Brands (NYSE: DIN) is a casual restaurant chain that owns the Applebee’s and IHOP banners.
Why Should You Dump DIN?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Sales over the last six years were less profitable as its earnings per share fell by 10.1% annually while its revenue was flat
- High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $26.42 per share, Dine Brands trades at 5.1x forward P/E. Dive into our free research report to see why there are better opportunities than DIN.
ICF International (ICFI)
Trailing 12-Month GAAP Operating Margin: 8.1%
Operating at the intersection of policy, technology, and implementation for over five decades, ICF International (NASDAQ: ICFI) provides professional consulting services and technology solutions to government agencies and commercial clients across energy, health, environment, and security sectors.
Why Do We Pass on ICFI?
- Backlog growth averaged a weak 1.6% over the past two years, suggesting it may need to tweak its product roadmap or go-to-market strategy
- Projected sales decline of 6% for the next 12 months points to a tough demand environment ahead
- 5.2 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
ICF International is trading at $87.08 per share, or 12.6x forward P/E. Check out our free in-depth research report to learn more about why ICFI doesn’t pass our bar.
Teleflex (TFX)
Trailing 12-Month GAAP Operating Margin: 9.3%
With a portfolio spanning from vascular access catheters to minimally invasive surgical tools, Teleflex (NYSE: TFX) designs, manufactures, and supplies single-use medical devices used in critical care and surgical procedures across hospitals worldwide.
Why Does TFX Fall Short?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 3.3% annually
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Teleflex’s stock price of $119.93 implies a valuation ratio of 8.2x forward P/E. Read our free research report to see why you should think twice about including TFX in your portfolio.
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