Even if a company is profitable, it doesn’t always mean it’s 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. That said, here are three profitable companies to avoid and some better opportunities instead.
Enpro (NPO)
Trailing 12-Month GAAP Operating Margin: 14.8%
Holding a Guinness World Record for creating the world's largest gasket, Enpro (NYSE: NPO) designs, manufactures, and sells products used for machinery in various industries.
Why Do We Think Twice About NPO?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Earnings per share were flat over the last two years and fell short of the peer group average
- Underwhelming 6.4% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $224.54 per share, Enpro trades at 28.5x forward P/E. To fully understand why you should be careful with NPO, check out our full research report (it’s free).
Pursuit (PRSU)
Trailing 12-Month GAAP Operating Margin: 21.1%
With attractions ranging from glacier tours in the Canadian Rockies to an oceanfront geothermal lagoon in Iceland, Pursuit Attractions and Hospitality (NYSE: PRSU) operates iconic travel experiences, experiential marketing services, and exhibition management across North America and Europe.
Why Are We Hesitant About PRSU?
- Annual sales declines of 16.4% for the past five years show its products and services struggled to connect with the market
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 1.4% for the last two years
- Negative returns on capital show that some of its growth strategies have backfired
Pursuit trades at a stock price of $34.09. If you’re considering PRSU for your portfolio, see our FREE research report to learn more.
AT&T (T)
Trailing 12-Month GAAP Operating Margin: 15.9%
Founded by Alexander Graham Bell, AT&T (NYSE: T) is a multinational telecomm conglomerate providing a range of communications and internet services.
Why Do We Think T Will Underperform?
- Annual revenue declines of 6.7% over the last five years indicate problems with its market positioning
- Sales were less profitable over the last five years as its earnings per share fell by 9% annually, worse than its revenue declines
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 2.1 percentage points
AT&T’s stock price of $28.71 implies a valuation ratio of 13.2x forward P/E. Check out our free in-depth research report to learn more about why T doesn’t pass our bar.
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