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".
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. That said, here are three profitable companies to avoid and some better opportunities instead.
Commvault (CVLT)
Trailing 12-Month GAAP Operating Margin: 7.6%
Born from the need to create ironclad protection in an increasingly dangerous digital world, Commvault (NASDAQ: CVLT) provides data protection and cyber resilience software that helps organizations secure, back up, and recover their data across on-premises, hybrid, and multi-cloud environments.
Why Are We Hesitant About CVLT?
- Muted 9.1% annual revenue growth over the last five years shows its demand lagged behind its software peers
- Estimated sales growth of 13.2% for the next 12 months implies demand will slow from its two-year trend
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 1.1 percentage points
Commvault’s stock price of $191 implies a valuation ratio of 7.2x forward price-to-sales. Check out our free in-depth research report to learn more about why CVLT doesn’t pass our bar.
TreeHouse Foods (THS)
Trailing 12-Month GAAP Operating Margin: 4%
Whether it be packaged crackers, broths, or beverages, Treehouse Foods (NYSE: THS) produces a wide range of private-label foods for grocery and food service customers.
Why Do We Pass on THS?
- Shrinking unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 16.5%
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $16.30 per share, TreeHouse Foods trades at 8.2x forward P/E. If you’re considering THS for your portfolio, see our FREE research report to learn more.
Thermon (THR)
Trailing 12-Month GAAP Operating Margin: 15.8%
Creating the first packaged tracing systems, Thermon (NYSE: THR) is a leading provider of engineered industrial process heating solutions for process industries.
Why Do We Think Twice About THR?
- 4.3% annual revenue growth over the last two years was slower than its industrials peers
- Estimated sales growth of 3.2% for the next 12 months is soft and implies weaker demand
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 4.3% annually
Thermon is trading at $26.58 per share, or 10.3x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including THR in your portfolio.
Stocks We Like More
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