Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
Central Garden & Pet (CENT)
Trailing 12-Month GAAP Operating Margin: 8.3%
Enhancing the lives of both pets and homeowners, Central Garden & Pet (NASDAQ:CENT) is a leading producer and distributor of essential products for pet care, lawn and garden maintenance, and pest control.
Why Are We Out on CENT?
- 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
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its decreasing returns suggest its historical profit centers are aging
Central Garden & Pet’s stock price of $33.24 implies a valuation ratio of 11.9x forward P/E. To fully understand why you should be careful with CENT, check out our full research report (it’s free).
Cushman & Wakefield (CWK)
Trailing 12-Month GAAP Operating Margin: 4.5%
With expertise in the commercial real estate sector, Cushman & Wakefield (NYSE:CWK) is a global Chicago-based real estate firm offering a comprehensive range of services to clients.
Why Is CWK Risky?
- Annual sales growth of 4.1% over the last five years lagged behind its consumer discretionary peers as its large revenue base made it difficult to generate incremental demand
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 2.2% for the last two years
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Cushman & Wakefield is trading at $17.07 per share, or 12x forward P/E. If you’re considering CWK for your portfolio, see our FREE research report to learn more.
Vishay Precision (VPG)
Trailing 12-Month GAAP Operating Margin: 2.9%
Emerging from Vishay Intertechnology in 2010, Vishay Precision (NYSE:VPG) operates as a global provider of precision measurement and sensing technologies.
Why Should You Dump VPG?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 9% annually over the last two years
- Earnings per share fell by 15.3% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $43.73 per share, Vishay Precision trades at 44.2x forward P/E. Check out our free in-depth research report to learn more about why VPG doesn’t pass our bar.
Stocks We Like More
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