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".
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.
Manhattan Associates (MANH)
Trailing 12-Month GAAP Operating Margin: 25.8%
Built on a "versionless" cloud architecture that delivers quarterly updates to all customers, Manhattan Associates (NASDAQ: MANH) develops cloud-based software that helps retailers, wholesalers, and manufacturers manage their supply chains, inventory, and omnichannel operations.
Why Do We Think Twice About MANH?
- Products, pricing, or go-to-market strategy may need some adjustments as its 5.7% average billings growth over the last year was weak
- Estimated sales growth of 4.1% for the next 12 months implies demand will slow from its three-year trend
- Sky-high servicing costs result in an inferior gross margin of 56.3% that must be offset through increased usage
Manhattan Associates’s stock price of $214.64 implies a valuation ratio of 11.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than MANH.
Starbucks (SBUX)
Trailing 12-Month GAAP Operating Margin: 10.8%
Started by three friends in Seattle’s historic Pike Place Market, Starbucks (NASDAQ: SBUX) is a globally-renowned coffeehouse chain that offers a wide selection of high-quality coffee, beverages, and food items.
Why Does SBUX Worry Us?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 5.1 percentage points
- Earnings per share fell by 2.2% annually over the last six years while its revenue grew, showing its incremental sales were much less profitable
At $86.76 per share, Starbucks trades at 32x forward P/E. Read our free research report to see why you should think twice about including SBUX in your portfolio.
Valmont (VMI)
Trailing 12-Month GAAP Operating Margin: 9.9%
Credited with an invention in the 1950s that improved crop yields, Valmont (NYSE: VMI) provides engineered products and infrastructure services for the agricultural industry.
Why Does VMI Fall Short?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Anticipated sales growth of 2.9% for the next year implies demand will be shaky
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 6.8% annually
Valmont is trading at $376.19 per share, or 23.2x forward EV-to-EBITDA. If you’re considering VMI for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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