Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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 that don’t make the cut and some better opportunities instead.
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 Does THR Fall Short?
- Annual revenue growth of 4.3% over the last two years was below our standards for the industrials sector
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.2%
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.3% annually
Thermon is trading at $27.25 per share, or 10.6x forward EV-to-EBITDA. To fully understand why you should be careful with THR, check out our full research report (it’s free).
Bread Financial (BFH)
Trailing 12-Month GAAP Operating Margin: 10.1%
Formerly known as Alliance Data Systems until its 2022 rebranding, Bread Financial (NYSE: BFH) provides credit cards, installment loans, and savings products to consumers while powering branded payment solutions for retailers and merchants.
Why Do We Pass on BFH?
- Sales tumbled by 5.4% annually over the last two years, showing market trends are working against its favor during this cycle
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 6.8% annually while its revenue grew
At $60.71 per share, Bread Financial trades at 7.9x forward P/E. If you’re considering BFH for your portfolio, see our FREE research report to learn more.
New Mountain Finance (NMFC)
Trailing 12-Month GAAP Operating Margin: 39.1%
Operating as a financial bridge for growing businesses that might be overlooked by traditional banks, New Mountain Finance (NASDAQ: NMFC) is a business development company that provides loans and debt financing to middle-market companies in defensive growth industries.
Why Should You Dump NMFC?
- 2.3% annual revenue growth over the last two years was slower than its financials peers
- Earnings per share were flat over the last five years while its revenue grew, showing its incremental sales were less profitable
New Mountain Finance’s stock price of $9.80 implies a valuation ratio of 7.6x forward P/E. Read our free research report to see why you should think twice about including NMFC in your portfolio.
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