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. Keeping that in mind, here are three profitable companies to avoid and some better opportunities instead.
Electronic Arts (EA)
Trailing 12-Month GAAP Operating Margin: 19.1%
Best known for its Madden NFL and FIFA sports franchises, Electronic Arts (NASDAQ: EA) is one of the world’s largest video game publishers.
Why Does EA Fall Short?
- Lackluster 1.2% annual revenue growth over the last three years indicates the company is losing ground to competitors
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.2%
- Costs have risen faster than its revenue over the last few years, causing its EBITDA margin to decline by 6.1 percentage points
Electronic Arts’s stock price of $173.01 implies a valuation ratio of 14.5x forward EV/EBITDA. If you’re considering EA for your portfolio, see our FREE research report to learn more.
Old Dominion Freight Line (ODFL)
Trailing 12-Month GAAP Operating Margin: 25.4%
With its name deriving from the Commonwealth of Virginia’s nickname, Old Dominion (NASDAQ: ODFL) delivers less-than-truckload (LTL) and full-container load freight.
Why Are We Cautious About ODFL?
- Declining unit sales over the past two years imply it may need to invest in improvements to get back on track
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $156.65 per share, Old Dominion Freight Line trades at 28.7x forward P/E. To fully understand why you should be careful with ODFL, check out our full research report (it’s free).
Fiserv (FI)
Trailing 12-Month GAAP Operating Margin: 30.6%
Powering over 1 billion accounts and processing more than 12,000 financial transactions per second globally, Fiserv (NYSE: FI) provides payment processing and financial technology solutions that enable merchants, banks, and credit unions to accept payments and manage financial transactions.
Why Does FI Give Us Pause?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 6.2% over the last two years was below our standards for the financials sector
- Underwhelming 8.5% return on equity reflects management’s difficulties in finding profitable growth opportunities
Fiserv is trading at $138.00 per share, or 12.5x forward P/E. Dive into our free research report to see why there are better opportunities than FI.
Stocks We Like More
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