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".
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. Keeping that in mind, here are three profitable companies to avoid and some better opportunities instead.
OneWater (ONEW)
Trailing 12-Month GAAP Operating Margin: 2.7%
A public company since early 2020, OneWater Marine (NASDAQ: ONEW) sells boats, yachts, and other marine products.
Why Are We Cautious About ONEW?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Gross margin of 24.2% is below its competitors, leaving less money for marketing and promotions
- High net-debt-to-EBITDA ratio of 8× could force the company to raise capital at unfavorable terms if market conditions deteriorate
OneWater’s stock price of $15.62 implies a valuation ratio of 11x forward P/E. If you’re considering ONEW for your portfolio, see our FREE research report to learn more.
USANA (USNA)
Trailing 12-Month GAAP Operating Margin: 6.2%
Going to market with a direct selling model rather than through traditional retailers, USANA Health Sciences (NYSE: USNA) manufactures and sells nutritional, personal care, and skincare products.
Why Does USNA Fall Short?
- Annual sales declines of 5.9% for the past three years show its products struggled to connect with the market
- Smaller revenue base of $899.2 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 16.2% annually, worse than its revenue
At $29.74 per share, USANA trades at 10.2x forward P/E. Read our free research report to see why you should think twice about including USNA in your portfolio.
Apogee (APOG)
Trailing 12-Month GAAP Operating Margin: 8.2%
Involved in the design of the Apple Store on Fifth Avenue in New York City, Apogee (NASDAQ: APOG) sells architectural products and services such as high-performance glass for commercial buildings.
Why Are We Out on APOG?
- Sales tumbled by 2.4% annually over the last two years, showing market trends are working against its favor during this cycle
- Anticipated sales growth of 3% for the next year implies demand will be shaky
- Flat earnings per share over the last two years lagged its peers
Apogee is trading at $43.90 per share, or 10.5x forward P/E. Check out our free in-depth research report to learn more about why APOG doesn’t pass our bar.
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