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. That said, here are three profitable companies to avoid and some better opportunities instead.
Saia (SAIA)
Trailing 12-Month GAAP Operating Margin: 12.1%
Pivoting its business model after realizing there was more success in delivering produce than selling it, Saia (NASDAQ: SAIA) is a provider of freight transportation solutions.
Why Are We Hesitant About SAIA?
- Disappointing tons shipped over the past two years suggest it might have to lower prices to accelerate growth
- 7.6 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Waning returns on capital imply its previous profit engines are losing steam
At $353.03 per share, Saia trades at 33.3x forward P/E. Read our free research report to see why you should think twice about including SAIA in your portfolio.
Invesco (IVZ)
Trailing 12-Month GAAP Operating Margin: 23.6%
With roots dating back to 1935 when it pioneered the first mutual fund with an objective of capital growth, Invesco (NYSE: IVZ) is a global asset management firm that offers investment solutions across equities, fixed income, alternatives, and multi-asset strategies.
Why Do We Avoid IVZ?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Flat earnings per share over the last five years lagged its peers
- Below-average return on equity indicates management struggled to find compelling investment opportunities
Invesco’s stock price of $28.37 implies a valuation ratio of 11.2x forward P/E. To fully understand why you should be careful with IVZ, check out our full research report (it’s free for active Edge members).
Howard Hughes Holdings (HHH)
Trailing 12-Month GAAP Operating Margin: 30.9%
Named after the eccentric business magnate and aviator whose legacy lives on in real estate development, Howard Hughes Holdings (NYSE: HHH) develops, owns, and manages master-planned communities and commercial properties across the United States.
Why Should You Sell HHH?
- Annual revenue growth of 17.6% over the last five years was below our standards for the consumer discretionary sector
- Low free cash flow margin of 7.4% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Returns on capital are growing as management invests in more worthwhile ventures
Howard Hughes Holdings is trading at $80.60 per share, or 2.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than HHH.
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