Companies with solid operating margins have a competitive edge, allowing them to reinvest for sustainable expansion. The best of these businesses balance profitability with reinvestment, setting themselves up for long-term success.
Not all profitable companies are worth your attention, but we’re here to highlight the ones with the most upside. That said, here are three profitable companies that leverage their financial strength to beat the competition.
CarGurus (CARG)
Trailing 12-Month GAAP Operating Margin: 27%
Bringing transparency to a sometimes opaque process, CarGurus (NASDAQ: CARG) is a digital marketplace where auto dealers can connect with potential customers and where car buyers can browse, purchase, and obtain financing.
Why Are We Fans of CARG?
- Platform is difficult to replicate at scale and leads to a best-in-class gross margin of 86%
- Earnings growth has massively outpaced its peers over the last three years as its EPS has compounded at 26.2% annually
- Free cash flow margin grew by 14.9 percentage points over the last few years, giving the company more chips to play with
CarGurus’s stock price of $34.95 implies a valuation ratio of 10.3x forward EV/EBITDA. Is now the time to initiate a position? Find out in our full research report, it’s free.
Lululemon (LULU)
Trailing 12-Month GAAP Operating Margin: 19.9%
Originally serving yogis and hockey players, Lululemon (NASDAQ: LULU) is a designer, distributor, and retailer of athletic apparel for men and women.
Why Is LULU a Good Business?
- Brick-and-mortar locations are witnessing elevated demand as their same-store sales growth averaged 2.6% over the past two years
- Differentiated product assortment results in a best-in-class gross margin of 57.9%
- Highly efficient business model is illustrated by its impressive 21.7% operating margin
At $144.75 per share, Lululemon trades at 12.3x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Broadridge (BR)
Trailing 12-Month GAAP Operating Margin: 17.2%
Processing over $10 trillion in equity and fixed income trades daily and managing proxy voting for over 800 million equity positions, Broadridge Financial Solutions (NYSE: BR) provides technology-driven solutions that power investing, governance, and communications for banks, broker-dealers, asset managers, and public companies.
Why Are We Positive On BR?
- Offerings and unique value proposition resonate with customers, as seen in its above-market 8.9% annual sales growth over the last five years
- Free cash flow margin jumped by 11.2 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Rising returns on capital show management is finding more attractive investment opportunities
Broadridge is trading at $157.15 per share, or 16.5x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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