Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. That said, here are three profitable companies to steer clear of and a few better alternatives.
Kyndryl (KD)
Trailing 12-Month GAAP Operating Margin: 2.4%
Born from IBM's managed infrastructure services business in a 2021 spinoff, Kyndryl (NYSE: KD) is the world's largest IT infrastructure services provider that designs, builds, and manages technology environments for enterprise customers.
Why Does KD Fall Short?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 5% annually over the last five years
- Forecasted revenue decline of 1% for the upcoming 12 months implies demand will fall even further
- Push for growth has led to negative returns on capital, signaling value destruction
Kyndryl is trading at $13.20 per share, or 5.3x forward P/E. Check out our free in-depth research report to learn more about why KD doesn’t pass our bar.
FTI Consulting (FCN)
Trailing 12-Month GAAP Operating Margin: 9.7%
With a team of experts deployed across 30+ countries to tackle complex business challenges, FTI Consulting (NYSE: FCN) is a global business advisory firm that helps organizations manage change, mitigate risk, and resolve disputes across financial, legal, operational, and regulatory matters.
Why Is FCN Not Exciting?
- Muted 3% annual revenue growth over the last two years shows its demand lagged behind its business services peers
- Earnings per share have contracted by 5.1% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Eroding returns on capital suggest its historical profit centers are aging
FTI Consulting’s stock price of $151.70 implies a valuation ratio of 14.6x forward P/E. To fully understand why you should be careful with FCN, check out our full research report (it’s free).
NOV (NOV)
Trailing 12-Month GAAP Operating Margin: 5.1%
With roots stretching back to 1862 when it began making equipment for early oil fields, NOV (NYSE: NOV) manufactures drilling rigs, drill bits, pumps, and other equipment used to drill oil and gas wells.
Why Are We Hesitant About NOV?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.4% annually over the last ten years
- Gross margin of 20.6% reflects its high production costs and unfavorable asset base
- Low free cash flow margin of 2.9% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $21.39 per share, NOV trades at 19.3x forward P/E. Read our free research report to see why you should think twice about including NOV in your portfolio.
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