Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
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 to avoid and some better opportunities instead.
Trinity (TRN)
Trailing 12-Month GAAP Operating Margin: 16.6%
Operating under the trade name TrinityRail, Trinity (NYSE:TRN) is a provider of railcar products and services in North America.
Why Is TRN Not Exciting?
- Backlog has dropped by 27.8% on average over the past two years, suggesting it’s losing orders as competition picks up
- Sales are projected to be flat over the next 12 months and imply weak demand
- 22.9 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Trinity’s stock price of $35 implies a valuation ratio of 1.3x trailing 12-month price-to-sales. Read our free research report to see why you should think twice about including TRN in your portfolio.
FedEx (FDX)
Trailing 12-Month GAAP Operating Margin: 6.3%
Sporting one of the largest air cargo fleets in the world, FedEx (NYSE:FDX) is a global provider of parcel and cargo delivery services.
Why Is FDX Risky?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 1.2% for the last two years
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 2.4% for the last five years
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
FedEx is trading at $374.50 per share, or 19x forward P/E. Dive into our free research report to see why there are better opportunities than FDX.
Addus HomeCare (ADUS)
Trailing 12-Month GAAP Operating Margin: 9.2%
Serving approximately 66,000 clients across 22 states with a focus on "dual eligible" Medicare and Medicaid beneficiaries, Addus HomeCare (NASDAQ:ADUS) provides in-home personal care, hospice, and home health services to elderly, chronically ill, and disabled individuals.
Why Are We Cautious About ADUS?
- Revenue base of $1.35 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
At $112.43 per share, Addus HomeCare trades at 17x forward P/E. Check out our free in-depth research report to learn more about why ADUS doesn’t pass our bar.
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