Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. That said, here is one profitable company that balances growth and profitability and two that may struggle to keep up.
Two Stocks to Sell:
Darden (DRI)
Trailing 12-Month GAAP Operating Margin: 11.6%
Founded in 1968 as Red Lobster, Darden (NYSE: DRI) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.
Why Is DRI Not Exciting?
- Annual sales growth of 6.3% over the last six years lagged behind its restaurant peers as its large revenue base made it difficult to generate incremental demand
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Gross margin of 21.6% reflects the bad unit economics inherent in most restaurant businesses
Darden is trading at $178.06 per share, or 16.5x forward P/E. Check out our free in-depth research report to learn more about why DRI doesn’t pass our bar.
Shoals (SHLS)
Trailing 12-Month GAAP Operating Margin: 12.8%
Started in Huntsville, Alabama, Shoals (NASDAQ: SHLS) designs and manufactures products that make solar energy systems work more efficiently.
Why Does SHLS Fall Short?
- Annual sales declines of 2.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Shoals’s stock price of $8.98 implies a valuation ratio of 18.6x forward P/E. To fully understand why you should be careful with SHLS, check out our full research report (it’s free for active Edge members).
One Stock to Watch:
Berkshire Hathaway (BRK.A)
Trailing 12-Month GAAP Operating Margin: 20.1%
Led by legendary investor Warren Buffett since 1965, transforming it from a struggling textile manufacturer into a corporate giant, Berkshire Hathaway (NYSE: BRK.A) is a diversified holding company that owns businesses across insurance, railroads, utilities, manufacturing, retail, and services sectors.
Why Do We Watch BRK.A?
- Performance over the past five years was boosted by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Annual tangible book value per share growth of 15.9% over the last five years was superb and indicates its capital strength increased during this cycle
- Stellar return on equity showcases management’s ability to surface highly profitable business ventures
At $748,320 per share, Berkshire Hathaway trades at 22.6x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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