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.
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 are two profitable companies that leverage their financial strength to beat the competition and one that may struggle to keep up.
One Stock to Sell:
Union Pacific (UNP)
Trailing 12-Month GAAP Operating Margin: 40.6%
Part of the transcontinental railroad project, Union Pacific (NYSE:UNP) is a freight transportation company that operates a major railroad network.
Why Do We Think UNP Will Underperform?
- Underwhelming unit sales over the past two years suggest it might have to lower prices to accelerate growth
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.2%
- 7.3 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
At $233.92 per share, Union Pacific trades at 19.1x forward P/E. Dive into our free research report to see why there are better opportunities than UNP.
Two Stocks to Buy:
Eli Lilly (LLY)
Trailing 12-Month GAAP Operating Margin: 38.8%
Founded in 1876 by a Civil War veteran and pharmacist frustrated with the poor quality of medicines, Eli Lilly (NYSE:LLY) discovers, develops, and manufactures pharmaceutical products for conditions including diabetes, obesity, cancer, immunological disorders, and neurological diseases.
Why Do We Love LLY?
- Annual revenue growth of 36.1% over the past two years was outstanding, reflecting market share gains this cycle
- Adjusted operating margin improvement of 20.8 percentage points over the last two years demonstrates its ability to scale efficiently
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 29.5% exceeded its revenue gains over the last five years
Eli Lilly is trading at $1,072 per share, or 33.8x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
Ares (ARES)
Trailing 12-Month GAAP Operating Margin: 24.9%
With roots in the leveraged finance group of Apollo Management, Ares Management (NYSE:ARES) is an alternative investment firm that manages private equity, credit, real estate, and infrastructure assets for institutional and high-net-worth clients.
Why Are We Backing ARES?
- Annual revenue growth of 19.2% over the past five years was outstanding, reflecting market share gains this cycle
- Efficiency rose over the last five years as its fee-related earnings increased by 33.6% per year
- Earnings per share have comfortably outperformed the peer group average over the last five years, increasing by 17.9% annually
Ares’s stock price of $165.73 implies a valuation ratio of 27.5x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members.