Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. Keeping that in mind, here are three profitable companies to avoid and some better opportunities instead.
Crocs (CROX)
Trailing 12-Month GAAP Operating Margin: 6.4%
Founded in 2002, Crocs (NASDAQ: CROX) sells casual footwear and is known for its iconic clog shoe.
Why Are We Hesitant About CROX?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Estimated sales decline of 4.1% for the next 12 months implies a challenging demand environment
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Crocs is trading at $88.92 per share, or 7x forward P/E. Read our free research report to see why you should think twice about including CROX in your portfolio.
Kforce (KFRC)
Trailing 12-Month GAAP Operating Margin: 4.5%
With nearly 60 years of matching skilled professionals with the right opportunities, Kforce (NYSE: KFRC) is a professional staffing company that specializes in placing technology and finance experts with businesses on both temporary and permanent bases.
Why Should You Sell KFRC?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 9.2% annually over the last two years
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Eroding returns on capital suggest its historical profit centers are aging
Kforce’s stock price of $31.87 implies a valuation ratio of 13.1x forward P/E. Dive into our free research report to see why there are better opportunities than KFRC.
Insight Enterprises (NSIT)
Trailing 12-Month GAAP Operating Margin: 3.6%
With over 35 years of IT expertise and partnerships with more than 8,000 technology providers, Insight Enterprises (NASDAQ: NSIT) provides end-to-end digital transformation solutions that help businesses modernize their IT infrastructure and maximize the value of technology.
Why Do We Steer Clear of NSIT?
- Annual sales declines of 7.2% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share lagged its peers over the last two years as they only grew by 2.8% annually
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
At $126.44 per share, Insight Enterprises trades at 12.5x forward P/E. Check out our free in-depth research report to learn more about why NSIT doesn’t pass our bar.
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