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 that don’t make the cut and some better opportunities instead.
IDEX (IEX)
Trailing 12-Month GAAP Operating Margin: 19.9%
Founded in 1988, IDEX (NYSE:IEX) is a global manufacturer specializing in highly engineered products such as pumps, flow meters, and fluidics systems for various industries.
Why Should You Sell IEX?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 3.1% annually
- Diminishing returns on capital suggest its earlier profit pools are drying up
IDEX’s stock price of $169.57 implies a valuation ratio of 20.6x forward P/E. Dive into our free research report to see why there are better opportunities than IEX.
AECOM (ACM)
Trailing 12-Month GAAP Operating Margin: 6.4%
Founded in 1990 when a group of engineers from five companies decided to merge, AECOM (NYSE:ACM) provides various infrastructure consulting services.
Why Are We Cautious About ACM?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 2% decline in its backlog
- Gross margin of 6.6% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Subpar operating margin of 4.5% constrains its ability to invest in process improvements or effectively respond to new competitive threats
AECOM is trading at $132.72 per share, or 24.3x forward P/E. Read our free research report to see why you should think twice about including ACM in your portfolio.
Donnelley Financial Solutions (DFIN)
Trailing 12-Month GAAP Operating Margin: 18.9%
Born from the need to navigate increasingly complex financial regulations in the digital age, Donnelley Financial Solutions (NYSE:DFIN) provides software and technology-enabled services that help companies comply with SEC regulations and manage financial transactions and reporting requirements.
Why Does DFIN Worry Us?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 3% annually over the last five years
At $46.63 per share, Donnelley Financial Solutions trades at 11x forward P/E. To fully understand why you should be careful with DFIN, check out our full research report (it’s free for active Edge members).
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