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. Keeping that in mind, here are three profitable companies to avoid and some better opportunities instead.
IDEX (IEX)
Trailing 12-Month GAAP Operating Margin: 20.2%
Founded in 1988, IDEX (NYSE: IEX) is a global manufacturer specializing in highly engineered products such as pumps, flow meters, and fluidics systems for various industries.
Why Do We Avoid IEX?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 1.7% annually while its revenue grew
- Waning returns on capital imply its previous profit engines are losing steam
IDEX’s stock price of $205.10 implies a valuation ratio of 25.6x forward P/E. If you’re considering IEX for your portfolio, see our FREE research report to learn more.
CooperCompanies (COO)
Trailing 12-Month GAAP Operating Margin: 16.7%
With a history dating back to 1958 and a portfolio spanning two distinct healthcare segments, Cooper Companies (NASDAQ: COO) develops and manufactures medical devices focused on vision care through contact lenses and women's health including fertility products and services.
Why Does COO Worry Us?
- 6.7% annual revenue growth over the last two years was slower than its healthcare peers
- Free cash flow margin shrank by 7.3 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $81.74 per share, CooperCompanies trades at 18.4x forward P/E. Dive into our free research report to see why there are better opportunities than COO.
Agilent (A)
Trailing 12-Month GAAP Operating Margin: 21.3%
Originally spun off from Hewlett-Packard in 1999 as its measurement and analytical division, Agilent Technologies (NYSE: A) provides analytical instruments, software, services, and consumables for laboratory workflows in life sciences, diagnostics, and applied chemical markets.
Why Are We Cautious About A?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 3.9 percentage points
Agilent is trading at $124.80 per share, or 21.7x forward P/E. Read our free research report to see why you should think twice about including A in your portfolio.
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