Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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. That said, here are three profitable companies to avoid and some better opportunities instead.
Tapestry (TPR)
Trailing 12-Month GAAP Operating Margin: 6.8%
Originally founded as Coach, Tapestry (NYSE: TPR) is an American fashion conglomerate with a portfolio of luxury brands offering high-quality accessories and fashion products.
Why Should You Sell TPR?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Poor expense management has led to an operating margin of 11.7% that is below the industry average
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $132.43 per share, Tapestry trades at 23x forward P/E. Check out our free in-depth research report to learn more about why TPR doesn’t pass our bar.
Hexcel (HXL)
Trailing 12-Month GAAP Operating Margin: 6.3%
Founded shortly after World War II by a group of engineers from UC Berkley, Hexcel (NYSE: HXL) manufactures lightweight composite materials primarily for the aerospace and defense sectors.
Why Should You Dump HXL?
- Sales trends were unexciting over the last five years as its 1.2% annual growth was below the typical industrials company
- Earnings per share were flat over the last two years and fell short of the peer group average
- Underwhelming 5.8% return on capital reflects management’s difficulties in finding profitable growth opportunities
Hexcel’s stock price of $82.70 implies a valuation ratio of 38.8x forward P/E. To fully understand why you should be careful with HXL, check out our full research report (it’s free).
Ingram Micro (INGM)
Trailing 12-Month GAAP Operating Margin: 1.6%
Operating as the crucial link in the global technology supply chain with a presence in 57 countries, Ingram Micro (NYSE: INGM) is a global technology distributor that connects manufacturers with resellers, providing hardware, software, cloud services, and logistics expertise.
Why Does INGM Fall Short?
- 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 2.2% for the last five years
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 7.8% annually while its revenue grew
- Low free cash flow margin of -0.1% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Ingram Micro is trading at $21.33 per share, or 6.7x forward P/E. Dive into our free research report to see why there are better opportunities than INGM.
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