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.
J&J Snack Foods (JJSF)
Trailing 12-Month GAAP Operating Margin: 7%
Best known for its SuperPretzel soft pretzels and ICEE frozen drinks, J&J Snack Foods (NASDAQ: JJSF) produces a range of snacks and beverages and distributes them primarily to supermarket and food service customers.
Why Are We Hesitant About JJSF?
- Modest revenue base of $1.6 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
- Free cash flow margin shrank by 2.7 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
At $81.84 per share, J&J Snack Foods trades at 31.4x forward EV-to-EBITDA. To fully understand why you should be careful with JJSF, check out our full research report (it’s free for active Edge members).
Alamo (ALG)
Trailing 12-Month GAAP Operating Margin: 10.1%
Expanding its markets through acquisitions since its founding, Alamo (NSYE:ALG) designs, manufactures, and services vegetation management and infrastructure maintenance equipment for governmental, industrial, and agricultural use.
Why Does ALG Fall Short?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.3% annually over the last two years
- Estimated sales growth of 5% for the next 12 months is soft and implies weaker demand
- Earnings per share have contracted by 5.7% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
Alamo’s stock price of $166.86 implies a valuation ratio of 14.9x forward P/E. Read our free research report to see why you should think twice about including ALG in your portfolio.
Great Lakes Dredge & Dock (GLDD)
Trailing 12-Month GAAP Operating Margin: 14.7%
Founded as Lydon & Drews dredging company, Great Lakes Dredge & Dock (NASDAQ: GLDD) provides dredging services, land reclamation, and coastal protection projects in the United States and internationally.
Why Does GLDD Worry Us?
- Sales pipeline suggests its future revenue growth may not meet our standards as its average backlog growth of 4.2% for the past two years was weak
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 16.9%
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
Great Lakes Dredge & Dock is trading at $12.25 per share, or 13.6x forward P/E. Check out our free in-depth research report to learn more about why GLDD doesn’t pass our bar.
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