Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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 to avoid and some better opportunities instead.
YETI (YETI)
Trailing 12-Month GAAP Operating Margin: 13.1%
Founded by two brothers from Texas, YETI (NYSE: YETI) specializes in durable outdoor goods including coolers, drinkware, and other gear tailored to adventure enthusiasts.
Why Are We Wary of YETI?
- Annual revenue growth of 7.1% over the last two years was below our standards for the consumer discretionary sector
- Estimated sales growth of 3.4% for the next 12 months implies demand will slow from its two-year trend
- Eroding returns on capital suggest its historical profit centers are aging
YETI’s stock price of $39.70 implies a valuation ratio of 14.7x forward P/E. Read our free research report to see why you should think twice about including YETI in your portfolio.
Hayward (HAYW)
Trailing 12-Month GAAP Operating Margin: 19.8%
Credited with introducing the first variable-speed pool pump, Hayward (NYSE: HAYW) makes residential and commercial pool equipment and accessories.
Why Do We Steer Clear of HAYW?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.6%
- Earnings per share have dipped by 17.7% annually over the past three years, which is concerning because stock prices follow EPS over the long term
Hayward is trading at $15.30 per share, or 19.8x forward P/E. If you’re considering HAYW for your portfolio, see our FREE research report to learn more.
Integra LifeSciences (IART)
Trailing 12-Month GAAP Operating Margin: 10.3%
Founded in 1989 as a pioneer in regenerative medicine technology, Integra LifeSciences (NASDAQ: IART) develops and manufactures medical technologies for neurosurgery, wound care, and surgical reconstruction, including regenerative tissue products and surgical instruments.
Why Do We Pass on IART?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 1.2% annually
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 17.1 percentage points
At $12.51 per share, Integra LifeSciences trades at 4.9x forward P/E. Read our free research report to see why you should think twice about including IART in your portfolio.
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