Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. That said, here are three profitable companies to avoid and some better opportunities instead.
Upstart (UPST)
Trailing 12-Month GAAP Operating Margin: 2%
Using over 2,500 data variables and trained on nearly 82 million repayment events, Upstart (NASDAQ: UPST) is an AI-powered lending platform that uses machine learning to help banks and credit unions more accurately assess borrower risk for personal loans, auto loans, and home equity lines of credit.
Why Are We Hesitant About UPST?
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Cash-burning history makes us doubt the long-term viability of its business model
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
Upstart is trading at $35.85 per share, or 3.2x forward price-to-sales. To fully understand why you should be careful with UPST, check out our full research report (it’s free for active Edge members).
Inspired (INSE)
Trailing 12-Month GAAP Operating Margin: 10.8%
Specializing in digital casino gaming, Inspired (NASDAQ: INSE) is a provider of gaming hardware, virtual sports platforms, and server-based gaming systems.
Why Do We Think Twice About INSE?
- Annual revenue declines of 1.6% over the last two years indicate problems with its market positioning
- Forecasted revenue decline of 10.2% for the upcoming 12 months implies demand will fall even further
- Poor free cash flow margin of 2.9% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
At $7.05 per share, Inspired trades at 7x forward P/E. If you’re considering INSE for your portfolio, see our FREE research report to learn more.
Mettler-Toledo (MTD)
Trailing 12-Month GAAP Operating Margin: 28.1%
With roots dating back to the precision balance innovations of Swiss engineer Erhard Mettler, Mettler-Toledo (NYSE: MTD) manufactures precision weighing instruments, analytical equipment, and product inspection systems used in laboratories, industrial settings, and food retail.
Why Does MTD Give Us Pause?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Expenses have increased as a percentage of revenue over the last two years as its adjusted operating margin fell by 1.4 percentage points
Mettler-Toledo’s stock price of $1,402 implies a valuation ratio of 31.4x forward P/E. Read our free research report to see why you should think twice about including MTD in your portfolio.
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