Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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. Keeping that in mind, here are three profitable companies to avoid and some better opportunities instead.
Kulicke and Soffa (KLIC)
Trailing 12-Month GAAP Operating Margin: 6.7%
Headquartered in Singapore, Kulicke & Soffa (NASDAQ: KLIC) is a provider of production equipment and tools used to assemble semiconductor devices
Why Is KLIC Not Exciting?
- Annual sales declines of 3.9% for the past five years show its products and services struggled to connect with the market during this cycle
- Overall productivity fell over the last five years as its plummeting sales were accompanied by a decline in its operating margin
- Free cash flow margin dropped by 20.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Kulicke and Soffa is trading at $121.40 per share, or 29.8x forward P/E. Dive into our free research report to see why there are better opportunities than KLIC.
Lamb Weston (LW)
Trailing 12-Month GAAP Operating Margin: 9.3%
Best known for its Grown in Idaho brand, Lamb Weston (NYSE: LW) produces and distributes potato products such as frozen french fries and mashed potatoes.
Why Is LW Risky?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
- Earnings per share have contracted by 9.8% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
At $45.91 per share, Lamb Weston trades at 15.8x forward P/E. Check out our free in-depth research report to learn more about why LW doesn’t pass our bar.
American Express Global Business Travel (GBTG)
Trailing 12-Month GAAP Operating Margin: 2.7%
Originally spun off from American Express in 2014 but maintaining the Amex GBT brand, Global Business Travel Group (NYSE: GBTG) provides end-to-end business travel and expense management solutions, connecting corporate clients with travel suppliers and offering specialized software services.
Why Do We Think Twice About GBTG?
- Revenue increased by 12.5% annually over the last two years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- Gross margin of 59% reflects its high servicing costs
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 3.7 percentage points
American Express Global Business Travel’s stock price of $9.40 implies a valuation ratio of 1.5x forward price-to-sales. Read our free research report to see why you should think twice about including GBTG in your portfolio.
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