While profitability is essential, it doesn’t guarantee long-term success. Some companies that rest on their margins will lose ground as competition intensifies - as Jeff Bezos said, "Your margin is my opportunity".
Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. That said, here are three profitable companies to steer clear of and a few better alternatives.
SunOpta (STKL)
Trailing 12-Month GAAP Operating Margin: 3.3%
Committed to clean-label foods, SunOpta (NASDAQ: STKL) is a sustainability-focused food and beverage company specializing in the sourcing, processing, and packaging of organic products.
Why Does STKL Fall Short?
- Products have few die-hard fans as sales have declined by 4.9% annually over the last three years
- Subscale operations are evident in its revenue base of $763.2 million, meaning it has fewer distribution channels than its larger rivals
- Gross margin of 15.6% is an output of its commoditized products
SunOpta is trading at $6.14 per share, or 25.9x forward P/E. To fully understand why you should be careful with STKL, check out our full research report (it’s free).
AMETEK (AME)
Trailing 12-Month GAAP Operating Margin: 26.2%
Started from its humble beginnings in motor repair, AMETEK (NYSE: AME) manufactures electronic devices used in industries like aerospace, power, and healthcare.
Why Does AME Worry Us?
- 4.3% annual revenue growth over the last two years was slower than its industrials peers
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
At $181.80 per share, AMETEK trades at 25x forward P/E. If you’re considering AME for your portfolio, see our FREE research report to learn more.
SAIC (SAIC)
Trailing 12-Month GAAP Operating Margin: 7.4%
With over five decades of experience supporting national security missions, Science Applications International Corporation (NASDAQ: SAIC) provides technical, engineering, and enterprise IT services primarily to U.S. government agencies and military branches.
Why Should You Sell SAIC?
- Annual sales declines of 1.5% for the past two years show its products and services struggled to connect with the market during this cycle
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.5%
- ROIC of 11.9% reflects management’s challenges in identifying attractive investment opportunities
SAIC’s stock price of $117.28 implies a valuation ratio of 12.2x forward P/E. Dive into our free research report to see why there are better opportunities than SAIC.
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