Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.
Champion Homes (SKY)
Trailing 12-Month GAAP Operating Margin: 9.5%
Founded in 1951, Champion Homes (NYSE: SKY) is a manufacturer of modular homes and buildings in North America.
Why Does SKY Worry Us?
- Weak unit sales over the past two years imply it may need to invest in improvements to get back on track
- Earnings per share have contracted by 28.9% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Waning returns on capital imply its previous profit engines are losing steam
Champion Homes’s stock price of $64.30 implies a valuation ratio of 16.3x forward P/E. Read our free research report to see why you should think twice about including SKY in your portfolio.
Artivion (AORT)
Trailing 12-Month GAAP Operating Margin: 4%
Formerly known as CryoLife until its 2022 rebranding, Artivion (NYSE: AORT) develops and manufactures medical devices and preserves human tissues used in cardiac and vascular surgical procedures for patients with aortic disease.
Why Do We Avoid AORT?
- 7.2% annual revenue growth over the last five years was slower than its healthcare peers
- Modest revenue base of $390.1 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Underwhelming 1.9% return on capital reflects management’s difficulties in finding profitable growth opportunities
Artivion is trading at $30.49 per share, or 45.4x forward P/E. Dive into our free research report to see why there are better opportunities than AORT.
Amneal (AMRX)
Trailing 12-Month GAAP Operating Margin: 12.7%
Founded in 2002 and growing into one of America's largest generic drug producers, Amneal Pharmaceuticals (NASDAQ: AMRX) develops, manufactures, and distributes generic medicines, specialty branded drugs, biosimilars, and injectable products for the U.S. healthcare market.
Why Do We Think Twice About AMRX?
- 12.1 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
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $7.97 per share, Amneal trades at 11.4x forward P/E. Check out our free in-depth research report to learn more about why AMRX doesn’t pass our bar.
Stocks We Like More
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