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.

Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. Keeping that in mind, here are three profitable companies to avoid and some better opportunities instead.

MarineMax (HZO)

Trailing 12-Month GAAP Operating Margin: 1.5%

Appropriately headquartered in Clearwater, Florida, MarineMax (NYSE: HZO) sells boats, yachts, and other marine products.

Why Should You Sell HZO?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Earnings per share have contracted by 54.5% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
3. 10× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

MarineMax’s stock price of $26.67 implies a valuation ratio of 40.5x forward P/E. Check out our free in-depth research report to learn more about why HZO doesn’t pass our bar.

Royalty Pharma (RPRX)

Trailing 12-Month GAAP Operating Margin: 65.2%

Pioneering a unique business model in the pharmaceutical industry since 1996, Royalty Pharma (NASDAQ: RPRX) acquires rights to receive portions of sales from successful biopharmaceutical products, providing funding to drug developers without conducting research itself.

Why Does RPRX Worry Us?

1. Flat sales over the last two years suggest it must find different ways to grow during this cycle
2. Subscale operations are evident in its revenue base of $2.35 billion, meaning it has fewer distribution channels than its larger rivals
3. Efficiency has decreased over the last five years as its adjusted operating margin fell by 4.4 percentage points

Royalty Pharma is trading at $38.96 per share, or 7.8x forward P/E. Read our free research report to see why you should think twice about including RPRX in your portfolio.

Jefferies (JEF)

Trailing 12-Month GAAP Operating Margin: 11.9%

Tracing its roots back to 1962 and rebranded from Leucadia National Corporation in 2018, Jefferies Financial Group (NYSE: JEF) is a global investment banking and capital markets firm that provides advisory services, securities trading, and asset management to corporations, institutions, and wealthy individuals.

Why Are We Wary of JEF?

1. Annual revenue growth of 4.1% over the last five years was below our standards for the financials sector
2. Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 3.7% annually
3. 19× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

At $61.15 per share, Jefferies trades at 15.7x forward P/E. If you’re considering JEF for your portfolio, see our FREE research report to learn more.

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