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 steer clear of and a few better alternatives.
Entegris (ENTG)
Trailing 12-Month GAAP Operating Margin: 16%
With fabs representing the company’s largest customer type, Entegris (NASDAQ: ENTG) supplies products that purify, protect, and generally ensure the integrity of raw materials needed for advanced semiconductor manufacturing.
Why Do We Steer Clear of ENTG?
- Annual sales declines of 7.5% for the past two years show its products and services struggled to connect with the market during this cycle
- Anticipated sales growth of 2.2% for the next year implies demand will be shaky
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 6.7 percentage points
Entegris’s stock price of $82.10 implies a valuation ratio of 25.5x forward P/E. To fully understand why you should be careful with ENTG, check out our full research report (it’s free).
BJ's (BJRI)
Trailing 12-Month GAAP Operating Margin: 2.1%
Founded in 1978 in California, BJ’s Restaurants (NASDAQ: BJRI) is a chain of restaurants whose menu features classic American dishes, often with a twist.
Why Should You Sell BJRI?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Lacking pricing power results in an inferior gross margin of 14.7% that must be offset by turning more tables
- Underwhelming 2.6% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $33.50 per share, BJ's trades at 15.9x forward P/E. Read our free research report to see why you should think twice about including BJRI in your portfolio.
Novanta (NOVT)
Trailing 12-Month GAAP Operating Margin: 13.4%
Originally a pioneer in the laser scanning industry during the late 1960s, Novanta (NASDAQ: NOVT) offers medicine and manufacturing technology to the medical, life sciences, and manufacturing industries.
Why Do We Think Twice About NOVT?
- 3.7% annual revenue growth over the last two years was slower than its industrials peers
- Flat earnings per share over the last two years lagged its peers
- Free cash flow margin shrank by 8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Novanta is trading at $115.57 per share, or 32.8x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why NOVT doesn’t pass our bar.
Stocks We Like More
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