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. Keeping that in mind, here is one profitable company that generates reliable profits without sacrificing growth and two that may face some trouble.

Two Stocks to Sell:

Sanmina (SANM)

Trailing 12-Month GAAP Operating Margin: 4.6%

Founded in 1980, Sanmina (NASDAQ: SANM) is an electronics manufacturing services company offering end-to-end solutions for various industries.

Why Do We Think SANM Will Underperform?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.2% annually over the last two years
2. Gross margin of 8.2% reflects its high production costs
3. Earnings per share have dipped by 4.2% annually over the past two years, which is concerning because stock prices follow EPS over the long term

Sanmina is trading at $88.96 per share, or 13.2x forward P/E. If you’re considering SANM for your portfolio, see our FREE research report to learn more.

United Parcel Service (UPS)

Trailing 12-Month GAAP Operating Margin: 9.4%

Trademarking its recognizable UPS Brown color, UPS (NYSE: UPS) offers package delivery, supply chain management, and freight forwarding services.

Why Is UPS Risky?

1. Declining unit sales over the past two years imply it may need to invest in improvements to get back on track
2. Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 19.8% annually, worse than its revenue
3. Eroding returns on capital suggest its historical profit centers are aging

United Parcel Service’s stock price of $99.89 implies a valuation ratio of 13x forward P/E. Check out our free in-depth research report to learn more about why UPS doesn’t pass our bar.

One Stock to Watch:

VeriSign (VRSN)

Trailing 12-Month GAAP Operating Margin: 68%

While the company is not a domain registrar and does not directly sell domain names to end users, Verisign (NASDAQ: VRSN) operates and maintains the infrastructure to support domain names such as .com and .net.

Why Is VRSN Interesting?

1. Billings growth has averaged 15.6% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
2. Software is difficult to replicate at scale and leads to a best-in-class gross margin of 87.8%
3. VRSN is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders

At $285.15 per share, VeriSign trades at 16.5x forward price-to-sales. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.

High-Quality Stocks for All Market Conditions

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