Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages. Just because a business is in the green today doesn’t mean it will thrive tomorrow.
Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. Keeping that in mind, here are three profitable companies that don’t make the cut and some better opportunities instead.
Williams-Sonoma (WSM)
Trailing 12-Month GAAP Operating Margin: 18%
Started in 1956 as a store specializing in French cookware, Williams-Sonoma (NYSE: WSM) is a specialty retailer of higher-end kitchenware, home goods, and furniture.
Why Are We Hesitant About WSM?
- Store closures and disappointing same-store sales suggest demand is sluggish and it’s rightsizing its operations
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Free cash flow margin shrank by 5.3 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
Williams-Sonoma’s stock price of $156.37 implies a valuation ratio of 18.5x forward P/E. Dive into our free research report to see why there are better opportunities than WSM.
Freshpet (FRPT)
Trailing 12-Month GAAP Operating Margin: 1.8%
Standing out from typical processed pet foods, Freshpet (NASDAQ: FRPT) is a pet food company whose product portfolio includes natural meals and treats for dogs and cats.
Why Do We Think Twice About FRPT?
- Modest revenue base of $1.01 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Negative returns on capital show that some of its growth strategies have backfired
Freshpet is trading at $80.80 per share, or 62.3x forward P/E. Read our free research report to see why you should think twice about including FRPT in your portfolio.
Resideo (REZI)
Trailing 12-Month GAAP Operating Margin: 7.5%
Resideo Technologies, Inc. (NYSE: REZI) is a manufacturer and distributor of technology-driven products and solutions for home comfort, energy management, water management, and safety and security.
Why Are We Wary of REZI?
- 4.8% annual revenue growth over the last two years was slower than its industrials peers
- Estimated sales growth of 4.4% for the next 12 months is soft and implies weaker demand
- Eroding returns on capital suggest its historical profit centers are aging
At $20.91 per share, Resideo trades at 5.1x forward EV-to-EBITDA. If you’re considering REZI for your portfolio, see our FREE research report to learn more.
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