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.
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. That said, here are three profitable companies to steer clear of and a few better alternatives.
United Rentals (URI)
Trailing 12-Month GAAP Operating Margin: 25.1%
Owning the largest rental fleet in the world, United Rentals (NYSE: URI) provides equipment rental and related services to construction, industrial, and infrastructure industries.
Why Are We Hesitant About URI?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Earnings per share lagged its peers over the last two years as they only grew by 4.1% annually
- Free cash flow margin shrank by 5.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $839.30 per share, United Rentals trades at 17.8x forward P/E. Read our free research report to see why you should think twice about including URI in your portfolio.
Rogers (ROG)
Trailing 12-Month GAAP Operating Margin: 5.1%
With roots dating back to 1832, making it one of America's oldest continuously operating companies, Rogers (NYSE: ROG) designs and manufactures specialized engineered materials and components used in electric vehicles, telecommunications, renewable energy, and other high-performance applications.
Why Should You Dump ROG?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 7% annually over the last two years
- Sales over the last five years were less profitable as its earnings per share fell by 15.7% annually while its revenue was flat
- Free cash flow margin shrank by 5.4 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Rogers is trading at $92.05 per share, or 29.5x forward P/E. To fully understand why you should be careful with ROG, check out our full research report (it’s free for active Edge members).
Select Medical (SEM)
Trailing 12-Month GAAP Operating Margin: 5.5%
With a nationwide network spanning 46 states and over 2,700 healthcare facilities, Select Medical (NYSE: SEM) operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers across the United States.
Why Do We Steer Clear of SEM?
- Flat admissions over the past two years suggest it might have to lower prices to accelerate growth
- Earnings per share fell by 11.7% annually over the last five years while its revenue was flat, showing each sale was less profitable
- Diminishing returns on capital suggest its earlier profit pools are drying up
Select Medical’s stock price of $14.83 implies a valuation ratio of 12.3x forward P/E. Dive into our free research report to see why there are better opportunities than SEM.
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