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.
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: 25.6%
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 Does MANH Worry Us?
- Average billings growth of 5% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 5% for the next 12 months implies demand will slow from its two-year trend
- Gross margin of 56.5% is way below its competitors, leaving less money to invest in areas like marketing and R&D
Manhattan Associates’s stock price of $174.20 implies a valuation ratio of 9.5x forward price-to-sales. If you’re considering MANH for your portfolio, see our FREE research report to learn more.
Agilysys (AGYS)
Trailing 12-Month GAAP Operating Margin: 10.5%
With a tech stack that powers everything from check-in to checkout at some of the world's top hospitality venues, Agilysys (NASDAQ:AGYS) develops and provides cloud-based and on-premise software solutions for hotels, resorts, casinos, and restaurants to manage operations and enhance guest experiences.
Why Does AGYS Give Us Pause?
- 15.5% annual revenue growth over the last five years was slower than its software peers
- Steep infrastructure costs and weaker unit economics for a software company are reflected in its low gross margin of 61.8%
- Operating margin improvement of 2.2 percentage points over the last year demonstrates its ability to scale efficiently
Agilysys is trading at $117.11 per share, or 10.1x forward price-to-sales. To fully understand why you should be careful with AGYS, check out our full research report (it’s free).
AXIS Capital (AXS)
Trailing 12-Month GAAP Operating Margin: 18.1%
Founded in the aftermath of the 9/11 attacks when insurance capacity was scarce, AXIS Capital Holdings Limited (NYSE:AXS) is a global specialty insurer and reinsurer that provides coverage for complex risks across property, liability, professional lines, cyber, and other specialty markets.
Why Does AXS Fall Short?
- Muted 5.2% annual revenue growth over the last two years shows its demand lagged behind its insurance peers
- Growth in insurance policies was lackluster over the last two years as its 3.8% annual growth underperformed the typical financial institution
- Below-average return on equity indicates management struggled to find compelling investment opportunities
At $102.39 per share, AXIS Capital trades at 1.4x forward P/B. Check out our free in-depth research report to learn more about why AXS doesn’t pass our bar.
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