Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. That said, here are three profitable companies to steer clear of and a few better alternatives.
Lindsay (LNN)
Trailing 12-Month GAAP Operating Margin: 13.3%
A pioneer in the field of center pivot and lateral move irrigation, Lindsay (NYSE:LNN) provides a variety of proprietary water management and road infrastructure products and services.
Why Does LNN Give Us Pause?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Sales are projected to tank by 2.6% over the next 12 months as its demand continues evaporating
- Earnings per share lagged its peers over the last two years as they only grew by 4% annually
Lindsay is trading at $140.73 per share, or 22.1x forward P/E. To fully understand why you should be careful with LNN, check out our full research report (it’s free).
GXO Logistics (GXO)
Trailing 12-Month GAAP Operating Margin: 1.7%
With notable customers such as Nike and Apple, GXO (NYSE:GXO) manages outsourced supply chains and warehousing for various companies.
Why Is GXO Not Exciting?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 2.2% annually
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
GXO Logistics’s stock price of $53.63 implies a valuation ratio of 19.3x forward P/E. Read our free research report to see why you should think twice about including GXO in your portfolio.
Lockheed Martin (LMT)
Trailing 12-Month GAAP Operating Margin: 8.3%
Headquartered in Maryland, Famous for the F-35 aircraft, Lockheed Martin (NYSE:LMT) specializes in defense, space, homeland security, and information technology products.
Why Should You Sell LMT?
- Average backlog growth of 7.3% over the past two years was mediocre and suggests fewer customers signed long-term contracts
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 4.9% annually while its revenue grew
- Waning returns on capital imply its previous profit engines are losing steam
At $438.30 per share, Lockheed Martin trades at 15.5x forward P/E. Check out our free in-depth research report to learn more about why LMT doesn’t pass our bar.
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