Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages. Just because a business is in the green today doesn’t mean it will thrive tomorrow.
Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. That said, here are three profitable companies to steer clear of and a few better alternatives.
NXP Semiconductors (NXPI)
Trailing 12-Month GAAP Operating Margin: 25.4%
Spun off from Dutch electronics giant Philips in 2006, NXP Semiconductors (NASDAQ: NXPI) is a designer and manufacturer of chips used in autos, industrial manufacturing, mobile devices, and communications infrastructure.
Why Do We Think Twice About NXPI?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 4.1% annually over the last two years
- Anticipated sales growth of 5.2% for the next year implies demand will be shaky
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.4 percentage points
NXP Semiconductors’s stock price of $223.29 implies a valuation ratio of 17.8x forward P/E. To fully understand why you should be careful with NXPI, check out our full research report (it’s free).
Caleres (CAL)
Trailing 12-Month GAAP Operating Margin: 4.9%
The owner of Dr. Scholl's, Caleres (NYSE:CAL) is a footwear company offering a range of styles.
Why Is CAL Risky?
- Sales tumbled by 3.8% annually over the last two years, showing consumer trends are working against its favor
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Caleres is trading at $15.40 per share, or 5x forward P/E. Read our free research report to see why you should think twice about including CAL in your portfolio.
Laureate Education (LAUR)
Trailing 12-Month GAAP Operating Margin: 22.9%
Founded in 1998 by Douglas L. Becker and based in Miami, Laureate Education (NASDAQ:LAUR) is a global network of higher education institutions.
Why Are We Cautious About LAUR?
- Performance surrounding its enrolled students has lagged its peers
- Earnings per share have contracted by 4.3% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- ROIC of 7.6% reflects management’s challenges in identifying attractive investment opportunities
At $24.25 per share, Laureate Education trades at 15.5x forward P/E. Check out our free in-depth research report to learn more about why LAUR doesn’t pass our bar.
Stocks We Like More
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