Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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 is one profitable company that balances growth and profitability and two that may face some trouble.
Two Stocks to Sell:
The New York Times (NYT)
Trailing 12-Month GAAP Operating Margin: 15.3%
Founded in 1851, The New York Times (NYSE:NYT) is an American media organization known for its influential newspaper and expansive digital journalism platforms.
Why Do We Pass on NYT?
- Number of subscribers has disappointed over the past two years, indicating weak demand for its offerings
- Operating margin of 14.5% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Unchanged returns on capital make it difficult for the company’s valuation multiple to re-rate
The New York Times’s stock price of $71.51 implies a valuation ratio of 26x forward P/E. If you’re considering NYT for your portfolio, see our FREE research report to learn more.
Penumbra (PEN)
Trailing 12-Month GAAP Operating Margin: 13%
Founded in 2004 to address challenging medical conditions with significant unmet needs, Penumbra (NYSE:PEN) develops and manufactures innovative medical devices for treating vascular diseases and providing immersive healthcare rehabilitation solutions.
Why Does PEN Worry Us?
- Subscale operations are evident in its revenue base of $1.33 billion, meaning it has fewer distribution channels than its larger rivals
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Low returns on capital reflect management’s struggle to allocate funds effectively
Penumbra is trading at $338.87 per share, or 71.9x forward P/E. Read our free research report to see why you should think twice about including PEN in your portfolio.
One Stock to Buy:
Badger Meter (BMI)
Trailing 12-Month GAAP Operating Margin: 20%
The developer of the world’s first frost-proof water meter in 1905, Badger Meter (NYSE:BMI) provides water control and measure equipment to various industries.
Why Should You Buy BMI?
- Annual revenue growth of 16.6% over the last five years was superb and indicates its market share increased during this cycle
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 23.6% over the last two years outstripped its revenue performance
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its rising cash conversion increases its margin of safety
At $160.45 per share, Badger Meter trades at 29.9x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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