Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.
Middleby (MIDD)
Trailing 12-Month GAAP Operating Margin: 17.1%
Holding a Guinness World Record for creating the world’s fastest conveyor pizza oven, Middleby (NYSE:MIDD) is a food service and equipment manufacturer.
Why Should You Sell MIDD?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Anticipated sales growth of 2% for the next year implies demand will be shaky
- Earnings per share lagged its peers over the last two years as they only grew by 2.7% annually
At $141.49 per share, Middleby trades at 14.1x forward P/E. If you’re considering MIDD for your portfolio, see our FREE research report to learn more.
Bel Fuse (BELFA)
Trailing 12-Month GAAP Operating Margin: 15.1%
Founded by 26-year-old Elliot Bernstein during the electronics boom after WW2, Bel Fuse (NASDAQ:BELF.A) provides electronic systems and devices to the telecommunications, networking, transportation, and industrial sectors.
Why Is BELFA Not Exciting?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 10% annually over the last two years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
Bel Fuse’s stock price of $80.50 implies a valuation ratio of 8.5x forward EV-to-EBITDA. To fully understand why you should be careful with BELFA, check out our full research report (it’s free).
Premier (PINC)
Trailing 12-Month GAAP Operating Margin: 5.3%
Operating one of the largest healthcare group purchasing organizations in the United States with over 4,350 hospital members, Premier (NASDAQ:PINC) is a technology-driven healthcare improvement company that helps hospitals, health systems, and other providers reduce costs and improve clinical outcomes.
Why Do We Think PINC Will Underperform?
- Sales tumbled by 9.3% annually over the last two years, showing market trends are working against its favor during this cycle
- Projected sales decline of 10.6% over the next 12 months indicates demand will continue deteriorating
- Earnings per share have dipped by 9.5% annually over the past five years, which is concerning because stock prices follow EPS over the long term
Premier is trading at $21.55 per share, or 16.4x forward P/E. Dive into our free research report to see why there are better opportunities than PINC.
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