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 avoid and some better opportunities instead.
Agilysys (AGYS)
Trailing 12-Month GAAP Operating Margin: 7.4%
With a tech stack that powers everything from check-in to checkout at some of the world's top hospitality venues, Agilysys (NASDAQ: AGYS) develops and provides cloud-based and on-premise software solutions for hotels, resorts, casinos, and restaurants to manage operations and enhance guest experiences.
Why Are We Cautious About AGYS?
- Sales trends were unexciting over the last three years as its 19% annual growth was below the typical software company
- Gross margin of 62.1% is below its competitors, leaving less money to invest in areas like marketing and R&D
Agilysys’s stock price of $110.53 implies a valuation ratio of 9.7x forward price-to-sales. To fully understand why you should be careful with AGYS, check out our full research report (it’s free).
Pangaea (PANL)
Trailing 12-Month GAAP Operating Margin: 6.3%
Established in 1996, Pangaea Logistics (NASDAQ: PANL) specializes in global logistics and transportation services, focusing on the shipment of dry bulk cargoes.
Why Are We Wary of PANL?
- Annual revenue growth of 3.2% over the last two years was below our standards for the industrials sector
- Revenue growth over the past two years was nullified by the company’s new share issuances as its earnings per share fell by 41.1% annually
- Low free cash flow margin of 0.3% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Pangaea is trading at $5.38 per share, or 9.9x forward P/E. Dive into our free research report to see why there are better opportunities than PANL.
Dell (DELL)
Trailing 12-Month GAAP Operating Margin: 6.7%
Founded by Michael Dell in his University of Texas dorm room in 1984 with just $1,000, Dell Technologies (NYSE: DELL) provides hardware, software, and services that help organizations build their IT infrastructure, manage cloud environments, and enable digital transformation.
Why Are We Hesitant About DELL?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Underwhelming ARR growth of 5% suggests the company faced challenges in acquiring and retaining long-term customers
- Free cash flow margin dropped by 9.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $131.30 per share, Dell trades at 13.5x forward P/E. Check out our free in-depth research report to learn more about why DELL doesn’t pass our bar.
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