Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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 leverages its financial strength to beat the competition and two best left off your watchlist.
Two Stocks to Sell:
Paychex (PAYX)
Trailing 12-Month GAAP Operating Margin: 38%
Once known as the go-to service for small business payroll needs, Paychex (NASDAQ: PAYX) provides payroll processing, HR services, employee benefits administration, and insurance solutions to small and medium-sized businesses.
Why Is PAYX Not Exciting?
- Annual revenue growth of 6.7% over the last two years was well below our standards for the software sector
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 3.1 percentage points
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 5 percentage points over the next year
Paychex is trading at $126.59 per share, or 6.9x forward price-to-sales. If you’re considering PAYX for your portfolio, see our FREE research report to learn more.
Ford (F)
Trailing 12-Month GAAP Operating Margin: 1.6%
Established to make automobiles accessible to a broader segment of the population, Ford (NYSE: F) designs, manufactures, and sells a variety of automobiles, trucks, and electric vehicles.
Why Is F Risky?
- Flat vehicles sold over the past two years suggest it might have to lower prices to accelerate growth
- Eroding returns on capital suggest its historical profit centers are aging
- High net-debt-to-EBITDA ratio of 9× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Ford’s stock price of $11.93 implies a valuation ratio of 9x forward P/E. Check out our free in-depth research report to learn more about why F doesn’t pass our bar.
One Stock to Watch:
Booking (BKNG)
Trailing 12-Month GAAP Operating Margin: 32.8%
Formerly known as The Priceline Group, Booking Holdings (NASDAQ: BKNG) is the world’s largest online travel agency.
Why Do We Like BKNG?
- Room Nights Booked have grown by 9.5% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features
- Share buybacks catapulted its annual earnings per share growth to 39%, which outperformed its revenue gains over the last three years
- Robust free cash flow margin of 35.3% gives it many options for capital deployment
At $5,075 per share, Booking trades at 16.4x forward EV/EBITDA. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free for active Edge members .
High-Quality Stocks for All Market Conditions
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