Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
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.
WillScot Mobile Mini (WSC)
Trailing 12-Month GAAP Operating Margin: 16.4%
Originally focusing on mobile offices for construction sites, WillScot (NASDAQ: WSC) provides ready-to-use temporary spaces, largely for longer-term lease.
Why Is WSC Not Exciting?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Free cash flow margin shrank by 6.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $24.10 per share, WillScot Mobile Mini trades at 13.8x forward P/E. To fully understand why you should be careful with WSC, check out our full research report (it’s free).
Bruker (BRKR)
Trailing 12-Month GAAP Operating Margin: 5.3%
With roots dating back to the pioneering days of nuclear magnetic resonance technology, Bruker (NASDAQ: BRKR) develops and manufactures high-performance scientific instruments that enable researchers and industrial analysts to explore materials at microscopic, molecular, and cellular levels.
Why Are We Cautious About BRKR?
- 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
- Free cash flow margin dropped by 12.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Waning returns on capital imply its previous profit engines are losing steam
Bruker’s stock price of $31.14 implies a valuation ratio of 11.6x forward P/E. Check out our free in-depth research report to learn more about why BRKR doesn’t pass our bar.
Collegium Pharmaceutical (COLL)
Trailing 12-Month GAAP Operating Margin: 18.4%
Pioneering abuse-deterrent technology in a field plagued by addiction concerns, Collegium Pharmaceutical (NASDAQ: COLL) develops and markets specialty medications for treating moderate to severe pain, including abuse-deterrent opioid formulations.
Why Are We Hesitant About COLL?
- Subscale operations are evident in its revenue base of $707 million, meaning it has fewer distribution channels than its larger rivals
- Free cash flow margin shrank by 2.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Collegium Pharmaceutical is trading at $36.38 per share, or 4.8x forward P/E. If you’re considering COLL for your portfolio, see our FREE research report to learn more.
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