Even if a company is profitable, it doesn’t always mean it’s a great investment. Some struggle to maintain growth, face looming threats, or fail to reinvest wisely, limiting their future potential.
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 is one profitable company that generates reliable profits without sacrificing growth and two that may struggle to keep up.
Two Stocks to Sell:
United Airlines (UAL)
Trailing 12-Month GAAP Operating Margin: 8.3%
Founded in 1926, United Airlines Holdings (NASDAQ: UAL) operates a global airline network, providing passenger and cargo air transportation services across domestic and international routes.
Why Do We Think Twice About UAL?
- Demand for its offerings was relatively low as its number of revenue passenger miles has underwhelmed
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 3.5% for the last two years
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $101.48 per share, United Airlines trades at 8.3x forward P/E. If you’re considering UAL for your portfolio, see our FREE research report to learn more.
CDW (CDW)
Trailing 12-Month GAAP Operating Margin: 7.6%
Serving as a crucial bridge between technology manufacturers and end users since 1984, CDW (NASDAQ: CDW) is a multi-brand provider of information technology solutions that helps businesses and public sector organizations select, implement, and manage hardware, software, and IT services.
Why Are We Out on CDW?
- Annual sales declines of 1.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Anticipated sales growth of 1.9% for the next year implies demand will be shaky
- Flat earnings per share over the last two years lagged its peers
CDW’s stock price of $153.75 implies a valuation ratio of 15.6x forward P/E. Read our free research report to see why you should think twice about including CDW in your portfolio.
One Stock to Buy:
Duolingo (DUOL)
Trailing 12-Month GAAP Operating Margin: 9.5%
Founded by a Carnegie Mellon computer science professor and his Ph.D. student, Duolingo (NASDAQ: DUOL) is a mobile app helping people learn new languages.
Why Is DUOL a Top Pick?
- Monthly Active Users have increased by an average of 36.5% annually, giving it the potential for margin-accretive growth if it can develop valuable complementary products and features
- Incremental sales over the last three years have been highly profitable as its earnings per share increased by 311% annually, topping its revenue gains
- Strong free cash flow margin of 35% enables it to reinvest or return capital consistently, and its improved cash conversion implies it’s becoming a less capital-intensive business
Duolingo is trading at $314.17 per share, or 44.4x forward EV/EBITDA. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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