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 that may struggle to keep up.
Two Stocks to Sell:
Wyndham (WH)
Trailing 12-Month GAAP Operating Margin: 39.7%
Established in 1981, Wyndham (NYSE:WH) is a global hotel franchising company with over 9,000 hotels across nearly 95 countries on six continents.
Why Is WH Risky?
- Revenue per room has underperformed over the past two years, suggesting it may need to develop new facilities
- Underwhelming 12% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Wyndham’s stock price of $80.59 implies a valuation ratio of 16.4x forward P/E. Dive into our free research report to see why there are better opportunities than WH.
Amphastar Pharmaceuticals (AMPH)
Trailing 12-Month GAAP Operating Margin: 20.7%
Founded in 1996 and known for its expertise in complex drug formulations, Amphastar Pharmaceuticals (NASDAQ:AMPH) develops and manufactures technically challenging injectable and inhalation medications, including both generic and proprietary pharmaceutical products.
Why Does AMPH Give Us Pause?
- Revenue base of $723.3 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Day-to-day expenses have swelled relative to revenue over the last two years as its adjusted operating margin fell by 4.3 percentage points
At $28.93 per share, Amphastar Pharmaceuticals trades at 8.3x forward P/E. If you’re considering AMPH for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Broadridge (BR)
Trailing 12-Month GAAP Operating Margin: 17.6%
Processing over $10 trillion in equity and fixed income trades daily and managing proxy voting for over 800 million equity positions, Broadridge Financial Solutions (NYSE:BR) provides technology-driven solutions that power investing, governance, and communications for banks, broker-dealers, asset managers, and public companies.
Why Could BR Be a Winner?
- Offerings and unique value proposition resonate with customers, as seen in its above-market 8.9% annual sales growth over the last five years
- Free cash flow margin jumped by 8.6 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Improving returns on capital reflect management’s ability to monetize investments
Broadridge is trading at $221.22 per share, or 23.8x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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