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. That said, here are three profitable companies to avoid and some better opportunities instead.
Williams-Sonoma (WSM)
Trailing 12-Month GAAP Operating Margin: 18.6%
Started in 1956 as a store specializing in French cookware, Williams-Sonoma (NYSE:WSM) is a specialty retailer of higher-end kitchenware, home goods, and furniture.
Why Are We Hesitant About WSM?
- Ongoing store closures and lackluster same-store sales indicate sluggish demand and a focus on consolidation
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Earnings growth underperformed the sector average over the last three years as its EPS grew by just 3.3% annually
Williams-Sonoma’s stock price of $206.79 implies a valuation ratio of 24x forward P/E. Dive into our free research report to see why there are better opportunities than WSM.
Harley-Davidson (HOG)
Trailing 12-Month GAAP Operating Margin: 8.6%
Founded in 1903, Harley-Davidson (NYSE:HOG) is an American motorcycle manufacturer known for its heavyweight motorcycles designed for cruising on highways.
Why Should You Sell HOG?
- Sluggish trends in its motorcycles sold suggest customers aren’t adopting its solutions as quickly as the company hoped
- Free cash flow margin is forecasted to shrink by 4.4 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Harley-Davidson is trading at $20.12 per share, or 71.9x forward P/E. If you’re considering HOG for your portfolio, see our FREE research report to learn more.
WEX (WEX)
Trailing 12-Month GAAP Operating Margin: 24.9%
Originally founded in 1983 as Wright Express to serve the fleet card market, WEX (NYSE:WEX) provides payment processing and business solutions across fleet management, employee benefits, and corporate payments sectors.
Why Does WEX Worry Us?
- Annual revenue growth of 2.2% over the last two years was below our standards for the financials sector
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.5% annually
At $152.63 per share, WEX trades at 9.4x forward P/E. Check out our free in-depth research report to learn more about why WEX doesn’t pass our bar.
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