While profitability is essential, it doesn’t guarantee long-term success. Some companies that rest on their margins will lose ground as competition intensifies - as Jeff Bezos said, "Your margin is my opportunity".
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 that don’t make the cut and some better opportunities instead.
Vicor (VICR)
Trailing 12-Month GAAP Operating Margin: 7.9%
Founded by a researcher at the Massachusetts Institute of Technology, Vicor (NASDAQ: VICR) provides electrical power conversion and delivery products for a range of industries.
Why Are We Wary of VICR?
- Backlog growth averaged a weak 1.2% over the past two years, suggesting it may need to tweak its product roadmap or go-to-market strategy
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 8.6 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Vicor is trading at $92.19 per share, or 45.4x forward P/E. To fully understand why you should be careful with VICR, check out our full research report (it’s free for active Edge members).
Kennametal (KMT)
Trailing 12-Month GAAP Operating Margin: 7.3%
Involved in manufacturing hard tips of anti-tank projectiles in World War II, Kennametal (NYSE: KMT) is a provider of industrial materials and tools for various sectors.
Why Should You Sell KMT?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Anticipated sales growth of 1.6% for the next year implies demand will be shaky
- Earnings per share have dipped by 5.4% annually over the past two years, which is concerning because stock prices follow EPS over the long term
At $22.97 per share, Kennametal trades at 21.2x forward P/E. Dive into our free research report to see why there are better opportunities than KMT.
Biogen (BIIB)
Trailing 12-Month GAAP Operating Margin: 20.8%
Founded in 1978 and pioneering treatments for some of medicine's most complex challenges, Biogen (NASDAQ: BIIB) develops and markets therapies for neurological conditions, including multiple sclerosis, Alzheimer's disease, spinal muscular atrophy, and rare diseases.
Why Are We Hesitant About BIIB?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.2% annually over the last five years
- Sales are projected to tank by 7.2% over the next 12 months as demand evaporates further
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
Biogen’s stock price of $150.07 implies a valuation ratio of 9.9x forward P/E. If you’re considering BIIB for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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