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.
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. That said, here is one profitable company that leverages its financial strength to beat the competition and two that may struggle to keep up.
Two Stocks to Sell:
Lamb Weston (LW)
Trailing 12-Month GAAP Operating Margin: 9.4%
Best known for its Grown in Idaho brand, Lamb Weston (NYSE:LW) produces and distributes potato products such as frozen french fries and mashed potatoes.
Why Are We Wary of LW?
- Projected sales are flat for the next 12 months, implying demand will slow from its three-year trend
- Gross margin of 23.9% is an output of its commoditized products
- Efficiency has decreased over the last year as its operating margin fell by 5.3 percentage points
At $59.76 per share, Lamb Weston trades at 19.1x forward P/E. Read our free research report to see why you should think twice about including LW in your portfolio, it’s free for active Edge members.
GoodRx (GDRX)
Trailing 12-Month GAAP Operating Margin: 10.4%
Started in 2011 to tackle the problem of high prescription drug costs in America, GoodRx (NASDAQ:GDRX) operates a digital platform that helps consumers find lower prices on prescription medications through price comparison tools and discount codes.
Why Do We Think GDRX Will Underperform?
- Customer growth was choppy over the past two years, suggesting that increasing competition is causing challenges in landing new contracts
- Modest revenue base of $800.7 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Push for growth has led to negative returns on capital, signaling value destruction
GoodRx’s stock price of $2.76 implies a valuation ratio of 6.8x forward P/E. Check out our free in-depth research report to learn more about why GDRX doesn’t pass our bar.
One Stock to Watch:
Micron (MU)
Trailing 12-Month GAAP Operating Margin: 26.1%
Founded in the basement of a Boise, Idaho dental office in 1978, Micron (NYSE:MU) is a leading provider of memory chips used in thousands of devices across mobile, data centers, industrial, consumer, and automotive markets.
Why Are We Fans of MU?
- Market share has increased this cycle as its 55.1% annual revenue growth over the last two years was exceptional
- Notable projected revenue growth of 50.1% for the next 12 months hints at market share gains
- Earnings per share have comfortably outperformed the peer group average over the last five years, increasing by 24% annually
Micron is trading at $227.06 per share, or 13.3x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members.