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.
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 that don’t make the cut and some better opportunities instead.
Columbia Sportswear (COLM)
Trailing 12-Month GAAP Operating Margin: 8%
Originally founded as a hat store in 1938, Columbia Sportswear (NASDAQ: COLM) is a manufacturer of outerwear, sportswear, and footwear designed for outdoor enthusiasts.
Why Do We Think COLM Will Underperform?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Eroding returns on capital suggest its historical profit centers are aging
Columbia Sportswear is trading at $57.52 per share, or 18x forward P/E. Dive into our free research report to see why there are better opportunities than COLM.
Guess (GES)
Trailing 12-Month GAAP Operating Margin: 4.2%
Flexing the iconic upside-down triangle logo with a question mark, Guess (NYSE: GES) is a global fashion brand known for its trendy clothing, accessories, and denim wear.
Why Do We Pass on GES?
- Annual revenue growth of 7.3% over the last two years was below our standards for the consumer discretionary sector
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Guess’s stock price of $16.86 implies a valuation ratio of 11.7x forward P/E. Check out our free in-depth research report to learn more about why GES doesn’t pass our bar.
Greenbrier (GBX)
Trailing 12-Month GAAP Operating Margin: 11.7%
Having designed the industry’s first double-decker railcar in the 1980s, Greenbrier (NYSE: GBX) supplies the freight rail transportation industry with railcars and related services.
Why Are We Wary of GBX?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 4.5% annually over the last two years
- Gross margin of 13.5% reflects its high production costs
- Cash-burning history makes us doubt the long-term viability of its business model
At $46.56 per share, Greenbrier trades at 4.9x forward EV-to-EBITDA. To fully understand why you should be careful with GBX, check out our full research report (it’s free).
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