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".
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 that don’t make the cut and some better opportunities instead.
FOX (FOXA)
Trailing 12-Month GAAP Operating Margin: 19.7%
Founded in 1915, Fox (NASDAQ:FOXA) is a diversified media company, operating prominent cable news, television broadcasting, and digital media platforms.
Why Do We Think FOXA Will Underperform?
- Sizable revenue base leads to growth challenges as its 5.9% annual revenue increases over the last five years fell short of other consumer discretionary companies
- Projected 11.2 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
- Stagnant returns on capital show management has failed to improve the company’s business quality
FOX is trading at $73 per share, or 16.1x forward P/E. Read our free research report to see why you should think twice about including FOXA in your portfolio.
Deckers (DECK)
Trailing 12-Month GAAP Operating Margin: 23.6%
Established in 1973, Deckers (NYSE:DECK) is a footwear and apparel conglomerate with a portfolio of lifestyle and performance brands.
Why Do We Steer Clear of DECK?
- Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
- Poor expense management has led to an operating margin of 23.4% that is below the industry average
- Poor free cash flow margin of 18.5% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
At $103.64 per share, Deckers trades at 16.5x forward P/E. If you’re considering DECK for your portfolio, see our FREE research report to learn more.
Strategy (MSTR)
Trailing 12-Month GAAP Operating Margin: 2,313%
Once a traditional business intelligence software provider, Strategy (NASDAQ:MSTR) develops AI-powered enterprise analytics software while also functioning as a major corporate holder of Bitcoin cryptocurrency.
Why Should You Sell MSTR?
- MicroStrategy’s core analytics software has been eclipsed by its all-in Bitcoin strategy, leaving product innovation and enterprise deals starved for attention
- The company’s debt-financed Bitcoin buying ties shareholder fortunes to crypto swings and interest rates, amplifying downside risk and uncertainty
- On the bright side, its vast Bitcoin treasury gives Executive Chairman Michael Saylor a unique springboard to capture crypto upside and court investors seeking leveraged exposure to digital assets
Strategy’s stock price of $151.91 implies a valuation ratio of 100.9x forward price-to-sales. To fully understand why you should be careful with MSTR, check out our full research report (it’s free for active Edge members).
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