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".
Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. That said, here are three profitable companies that don’t make the cut and some better opportunities instead.
Getty Images (GETY)
Trailing 12-Month GAAP Operating Margin: 16.5%
With a vast library of over 562 million visual assets documenting everything from breaking news to iconic historical moments, Getty Images (NYSE: GETY) is a global visual content marketplace that licenses photos, videos, illustrations, and music to businesses, media outlets, and creative professionals.
Why Are We Out on GETY?
- 1.3% annual revenue growth over the last two years was slower than its business services peers
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 3.9 percentage points
- Free cash flow margin shrank by 12.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Getty Images is trading at $2.06 per share, or 2.9x forward EV-to-EBITDA. To fully understand why you should be careful with GETY, check out our full research report (it’s free).
MasterCraft (MCFT)
Trailing 12-Month GAAP Operating Margin: 4%
Started by a waterskiing instructor, MasterCraft (NASDAQ: MCFT) specializes in designing, manufacturing, and selling sport boats.
Why Is MCFT Not Exciting?
- Demand for its offerings was relatively low as its number of boats sold has underwhelmed
- Sales were less profitable over the last five years as its earnings per share fell by 7% annually, worse than its revenue declines
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
MasterCraft’s stock price of $22.44 implies a valuation ratio of 18.9x forward P/E. Read our free research report to see why you should think twice about including MCFT in your portfolio.
Taboola (TBLA)
Trailing 12-Month GAAP Operating Margin: 2.5%
Often appearing as those "You May Also Like" or "Recommended For You" boxes at the bottom of news articles, Taboola (NASDAQ: TBLA) operates a digital platform that recommends personalized content to users across publisher websites, helping both publishers monetize their sites and advertisers reach target audiences.
Why Does TBLA Worry Us?
- Earnings per share lagged its peers over the last three years as they only grew by 2% annually
- 2,406.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Negative returns on capital show that some of its growth strategies have backfired
At $3.55 per share, Taboola trades at 8.6x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why TBLA doesn’t pass our bar.
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