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. Keeping that in mind, here is one profitable company that balances growth and profitability and two best left off your watchlist.
Two Stocks to Sell:
Chemed (CHE)
Trailing 12-Month GAAP Operating Margin: 13.9%
With a unique business model combining end-of-life care and household services, Chemed (NYSE:CHE) operates two distinct businesses: VITAS, which provides hospice care for terminally ill patients, and Roto-Rooter, which offers plumbing and water restoration services.
Why Is CHE Not Exciting?
- Muted 4.1% annual revenue growth over the last five years shows its demand lagged behind its healthcare peers
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 4.3 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $453.01 per share, Chemed trades at 18.1x forward P/E. To fully understand why you should be careful with CHE, check out our full research report (it’s free).
Collegium Pharmaceutical (COLL)
Trailing 12-Month GAAP Operating Margin: 20.7%
Pioneering abuse-deterrent technology in a field plagued by addiction concerns, Collegium Pharmaceutical (NASDAQ:COLL) develops and markets specialty medications for treating moderate to severe pain, including abuse-deterrent opioid formulations.
Why Are We Wary of COLL?
- Subscale operations are evident in its revenue base of $757.1 million, meaning it has fewer distribution channels than its larger rivals
- Diminishing returns on capital suggest its earlier profit pools are drying up
Collegium Pharmaceutical is trading at $47.67 per share, or 6.2x forward P/E. Dive into our free research report to see why there are better opportunities than COLL.
One Stock to Watch:
Toast (TOST)
Trailing 12-Month GAAP Operating Margin: 4.1%
Born from the frustrations of three friends waiting too long for their restaurant bill, Toast (NYSE:TOST) provides a cloud-based digital technology platform with software, payment processing, and hardware solutions built specifically for restaurants.
Why Does TOST Stand Out?
- Customers view its software as mission-critical to their operations as its ARR has averaged 31.3% growth over the last year
- Forecasted revenue growth of 21.1% for the next 12 months indicates its momentum over the last two years is sustainable
Toast’s stock price of $27.86 implies a valuation ratio of 2.3x forward price-to-sales. Is now the right time to buy? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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