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".
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.
The Toro Company (TTC)
Trailing 12-Month GAAP Operating Margin: 11.2%
Ceasing all production to support the war effort during World War II, Toro (NYSE: TTC) offers outdoor equipment for residential, commercial, and agricultural use.
Why Do We Steer Clear of TTC?
- Annual sales declines of 2.9% for the past two years show its products and services struggled to connect with the market during this cycle
- 9.1 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
- Eroding returns on capital suggest its historical profit centers are aging
The Toro Company is trading at $82 per share, or 17.9x forward P/E. If you’re considering TTC for your portfolio, see our FREE research report to learn more.
Amphastar Pharmaceuticals (AMPH)
Trailing 12-Month GAAP Operating Margin: 25.1%
Founded in 1996 and known for its expertise in complex drug formulations, Amphastar Pharmaceuticals (NASDAQ: AMPH) develops and manufactures technically challenging injectable and inhalation medications, including both generic and proprietary pharmaceutical products.
Why Is AMPH Not Exciting?
- Revenue base of $722.7 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
Amphastar Pharmaceuticals’s stock price of $30.50 implies a valuation ratio of 9.3x forward P/E. Read our free research report to see why you should think twice about including AMPH in your portfolio.
AXIS Capital (AXS)
Trailing 12-Month GAAP Operating Margin: 16.1%
Founded in the aftermath of the 9/11 attacks when insurance capacity was scarce, AXIS Capital Holdings Limited (NYSE: AXS) is a global specialty insurer and reinsurer that provides coverage for complex risks across property, liability, professional lines, cyber, and other specialty markets.
Why Are We Cautious About AXS?
- Annual revenue growth of 4.9% over the last five years was below our standards for the insurance sector
- 3.4% annualized net premiums earned growth over the last two years lagged behind its insurance peers
- ROE of 9.7% reflects management’s challenges in identifying attractive investment opportunities
At $98.64 per share, AXIS Capital trades at 1.3x forward P/B. Dive into our free research report to see why there are better opportunities than AXS.
High-Quality Stocks for All Market Conditions
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