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".
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 that don’t make the cut and some better opportunities instead.
Victoria's Secret (VSCO)
Trailing 12-Month GAAP Operating Margin: 4.5%
Spun off from L Brands in 2020, Victoria’s Secret (NYSE:VSCO) is an intimate clothing and beauty retailer that sells its own brands of lingerie, undergarments, and personal fragrances.
Why Should You Dump VSCO?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
At $36.82 per share, Victoria's Secret trades at 17.3x forward P/E. To fully understand why you should be careful with VSCO, check out our full research report (it’s free for active Edge members).
Strategic Education (STRA)
Trailing 12-Month GAAP Operating Margin: 12.6%
Formed through the merger of Strayer Education and Capella Education in 2018, Strategic Education (NASDAQ:STRA) is a career-focused higher education provider.
Why Are We Out on STRA?
- Sluggish trends in its domestic students suggest customers aren’t adopting its solutions as quickly as the company hoped
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 5.2% annually
- Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
Strategic Education’s stock price of $78.05 implies a valuation ratio of 12.4x forward P/E. Check out our free in-depth research report to learn more about why STRA doesn’t pass our bar.
Sherwin-Williams (SHW)
Trailing 12-Month GAAP Operating Margin: 16%
Widely known for its success in the paint industry, Sherwin-Williams (NYSE:SHW) is a manufacturer of paints, coatings, and related products.
Why Is SHW Not Exciting?
- 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
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.2% annually
- 2.9 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
Sherwin-Williams is trading at $336.19 per share, or 26.7x forward P/E. Dive into our free research report to see why there are better opportunities than SHW.
High-Quality Stocks for All Market Conditions
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