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. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.
Rush Enterprises (RUSHA)
Trailing 12-Month GAAP Operating Margin: 5.6%
Headquartered in Texas, Rush Enterprises (NASDAQ:RUSH.A) provides truck-related services and solutions, including sales, leasing, parts, and maintenance for commercial vehicles.
Why Do We Pass on RUSHA?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Projected sales decline of 6.5% for the next 12 months points to an even tougher demand environment ahead
- Earnings per share have contracted by 10.6% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
Rush Enterprises is trading at $53.19 per share, or 13.5x forward EV-to-EBITDA. If you’re considering RUSHA for your portfolio, see our FREE research report to learn more.
Generac (GNRC)
Trailing 12-Month GAAP Operating Margin: 12.7%
With its name deriving from a combination of “generating” and “AC”, Generac (NYSE:GNRC) offers generators and other power products for residential, industrial, and commercial use.
Why Is GNRC Not Exciting?
- Muted 4.7% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Generac’s stock price of $170 implies a valuation ratio of 20.9x forward P/E. Dive into our free research report to see why there are better opportunities than GNRC.
CNO Financial Group (CNO)
Trailing 12-Month GAAP Operating Margin: 14.2%
Rebranded from Conseco in 2010 to signal a fresh start after navigating financial challenges, CNO Financial Group (NYSE:CNO) develops and markets health insurance, annuities, and life insurance products primarily targeting middle-income pre-retirees and retirees.
Why Are We Cautious About CNO?
- Stagnant net premiums earned over the last five years suggest the firm needs alternative growth strategies
- Expenses have increased as a percentage of revenue over the last four years as its pre-tax profit margin fell by 7.3 percentage points
- Annual book value per share declines of 4.9% for the past five years show its capital management struggled during this cycle
At $39.22 per share, CNO Financial Group trades at 1.5x forward P/B. Read our free research report to see why you should think twice about including CNO in your portfolio.
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