Even if a company is profitable, it doesn’t always mean it’s a great investment. Some struggle to maintain growth, face looming threats, or fail to reinvest wisely, limiting their future potential.
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 to avoid and some better opportunities instead.
Pool (POOL)
Trailing 12-Month GAAP Operating Margin: 11.1%
Founded in 1993 and headquartered in Louisiana, Pool (NASDAQ: POOL) is one of the largest wholesale distributors of swimming pool supplies, equipment, and related leisure products.
Why Does POOL Give Us Pause?
- 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
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 1.8%
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Pool’s stock price of $292.50 implies a valuation ratio of 25.6x forward P/E. Read our free research report to see why you should think twice about including POOL in your portfolio.
CTS (CTS)
Trailing 12-Month GAAP Operating Margin: 15.1%
With roots dating back to 1896 and a global manufacturing footprint, CTS (NYSE: CTS) designs and manufactures sensors, connectivity components, and actuators for aerospace, defense, industrial, medical, and transportation markets.
Why Do We Pass on CTS?
- Annual sales declines of 6.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Smaller revenue base of $515.8 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Earnings per share have contracted by 5.8% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
At $41.50 per share, CTS trades at 19.1x forward P/E. If you’re considering CTS for your portfolio, see our FREE research report to learn more.
Vulcan Materials (VMC)
Trailing 12-Month GAAP Operating Margin: 18.9%
Founded in 1909, Vulcan Materials (NYSE: VMC) is a producer of construction aggregates, primarily crushed stone, sand, and gravel.
Why Does VMC Fall Short?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Performance surrounding its tons shipped has lagged its peers
- 5.6 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
Vulcan Materials is trading at $260.62 per share, or 31.1x forward P/E. To fully understand why you should be careful with VMC, check out our full research report (it’s free).
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