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. That said, here are three profitable companies that don’t make the cut and some better opportunities instead.
Bruker (BRKR)
Trailing 12-Month GAAP Operating Margin: 2%
With roots dating back to the pioneering days of nuclear magnetic resonance technology, Bruker (NASDAQ:BRKR) develops and manufactures high-performance scientific instruments that enable researchers and industrial analysts to explore materials at microscopic, molecular, and cellular levels.
Why Does BRKR Give Us Pause?
- 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
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 6.8 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $38.00 per share, Bruker trades at 20x forward P/E. Dive into our free research report to see why there are better opportunities than BRKR.
ePlus (PLUS)
Trailing 12-Month GAAP Operating Margin: 7.1%
Starting as a financing company in 1990 before evolving into a full-service technology provider, ePlus (NASDAQ:PLUS) provides comprehensive IT solutions, professional services, and financing options to help organizations optimize their technology infrastructure and supply chain processes.
Why Does PLUS Worry Us?
- 4.4% annual revenue growth over the last two years was slower than its business services peers
- Performance over the past two years shows its incremental sales were less profitable as its earnings per share were flat
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 3.5% for the last five years
ePlus’s stock price of $82.06 implies a valuation ratio of 15.4x forward P/E. To fully understand why you should be careful with PLUS, check out our full research report (it’s free).
Stifel (SF)
Trailing 12-Month GAAP Operating Margin: 16.3%
Tracing its roots back to 1890 when the firm was established in St. Louis, Stifel Financial (NYSE:SF) is a financial services firm that provides wealth management, investment banking, and institutional brokerage services to individuals, corporations, and institutions.
Why Do We Think Twice About SF?
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 8.2% annually
- Muted 4.4% annual book value per share growth over the last two years shows its capital generation lagged behind its financials peers
Stifel is trading at $118.75 per share, or 12.8x forward P/E. Check out our free in-depth research report to learn more about why SF doesn’t pass our bar.
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