Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.
AAON (AAON)
Trailing 12-Month GAAP Operating Margin: 10.1%
Backed by two million square feet of lab testing space, AAON (NASDAQ: AAON) makes heating, ventilation, and air conditioning equipment for different types of buildings.
Why Are We Cautious About AAON?
- Efficiency has decreased over the last five years as its operating margin fell by 6 percentage points
- Earnings per share fell by 22.7% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 27.2 percentage points
AAON’s stock price of $101.64 implies a valuation ratio of 52.7x forward P/E. Read our free research report to see why you should think twice about including AAON in your portfolio.
Veralto (VLTO)
Trailing 12-Month GAAP Operating Margin: 23.2%
Spun off from Danaher in 2023, Veralto (NYSE: VLTO) provides water analytics and treatment solutions.
Why Does VLTO Fall Short?
- Muted 4.1% annual revenue growth over the last four years shows its demand lagged behind its industrials peers
- Anticipated sales growth of 6.3% for the next year implies demand will be shaky
At $92.01 per share, Veralto trades at 22.7x forward P/E. Dive into our free research report to see why there are better opportunities than VLTO.
Bio-Techne (TECH)
Trailing 12-Month GAAP Operating Margin: 9.6%
With a catalog of hundreds of thousands of specialized biological products used in laboratories worldwide, Bio-Techne (NASDAQ: TECH) develops and manufactures specialized reagents, instruments, and services that help researchers study biological processes and enable diagnostic testing and cell therapy development.
Why Should You Dump TECH?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Smaller revenue base of $1.22 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- 11.6 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Bio-Techne is trading at $59.57 per share, or 30.7x forward P/E. Check out our free in-depth research report to learn more about why TECH doesn’t pass our bar.
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