Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.
Vishay Precision (VPG)
Trailing 12-Month GAAP Operating Margin: 2.6%
Emerging from Vishay Intertechnology in 2010, Vishay Precision (NYSE: VPG) operates as a global provider of precision measurement and sensing technologies.
Why Do We Avoid VPG?
- Sales tumbled by 10.2% 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 17.4% annually while its revenue grew
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $29.79 per share, Vishay Precision trades at 29.2x forward P/E. Check out our free in-depth research report to learn more about why VPG doesn’t pass our bar.
IBM (IBM)
Trailing 12-Month GAAP Operating Margin: 16.1%
With a corporate history spanning over a century and once known for its iconic mainframe computers, IBM (NYSE: IBM) provides hybrid cloud computing platforms, AI solutions, consulting services, and enterprise infrastructure to help businesses modernize their operations.
Why Are We Hesitant About IBM?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 3.3% annually
- ROIC of 11.5% reflects management’s challenges in identifying attractive investment opportunities
IBM’s stock price of $256.99 implies a valuation ratio of 22.7x forward P/E. To fully understand why you should be careful with IBM, check out our full research report (it’s free).
NetApp (NTAP)
Trailing 12-Month GAAP Operating Margin: 20.7%
Founded in 1992 as a pioneer in networked storage technology, NetApp (NASDAQ: NTAP) provides data storage and management solutions that help organizations store, protect, and optimize their data across on-premises data centers and public clouds.
Why Are We Cautious About NTAP?
- Annual revenue growth of 3.1% over the last two years was below our standards for the business services sector
- Projected sales growth of 4% for the next 12 months suggests sluggish demand
NetApp is trading at $123.63 per share, or 15.4x forward P/E. Dive into our free research report to see why there are better opportunities than NTAP.
Stocks We Like More
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