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 are three profitable companies that don’t make the cut and some better opportunities instead.

Lovesac (LOVE)

Trailing 12-Month GAAP Operating Margin: 2.3%

Known for its oversized, premium beanbags, Lovesac (NASDAQ: LOVE) is a specialty furniture brand selling modular furniture.

Why Does LOVE Fall Short?

1. Annual revenue growth of 1.6% over the last two years was below our standards for the consumer discretionary sector
2. Poor free cash flow margin of 0.6% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. Waning returns on capital imply its previous profit engines are losing steam

At $14.59 per share, Lovesac trades at 54.6x forward P/E. Check out our free in-depth research report to learn more about why LOVE doesn’t pass our bar.

Herc (HRI)

Trailing 12-Month GAAP Operating Margin: 15.5%

Formerly a subsidiary of Hertz Corporation and with a logo that still bears some similarities to its former parent, Herc Holdings (NYSE: HRI) provides equipment rental and related services to a wide range of industries.

Why Do We Think Twice About HRI?

1. Earnings per share fell by 3.4% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
2. Free cash flow margin dropped by 13.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Herc’s stock price of $121.11 implies a valuation ratio of 18.3x forward P/E. Dive into our free research report to see why there are better opportunities than HRI.

UniFirst (UNF)

Trailing 12-Month GAAP Operating Margin: 7.7%

With a fleet of trucks making weekly deliveries to over 300,000 customer locations, UniFirst (NYSE: UNF) provides, rents, cleans, and maintains workplace uniforms and protective clothing for businesses across various industries.

Why Does UNF Give Us Pause?

1. Estimated sales growth of 1% for the next 12 months implies demand will slow from its two-year trend
2. Performance over the past five years shows its incremental sales were less profitable as its earnings per share were flat
3. ROIC of 7.4% reflects management’s challenges in identifying attractive investment opportunities, and its decreasing returns suggest its historical profit centers are aging

UniFirst is trading at $157.24 per share, or 18.5x forward P/E. To fully understand why you should be careful with UNF, check out our full research report (it’s free for active Edge members).

Stocks We Like More

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