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. That said, here are three profitable companies to avoid and some better opportunities instead.
Gap (GAP)
Trailing 12-Month GAAP Operating Margin: 7.7%
Operating under the Gap, Old Navy, Banana Republic, and Athleta brands, Gap (NYSE:GAP) is an apparel and accessories retailer selling casual clothing to men, women, and children.
Why Does GAP Fall Short?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Projected sales growth of 1.3% for the next 12 months suggests sluggish demand
- ROIC of 7.1% reflects management’s challenges in identifying attractive investment opportunities
Gap is trading at $20.69 per share, or 8.8x forward P/E. Check out our free in-depth research report to learn more about why GAP doesn’t pass our bar.
General Mills (GIS)
Trailing 12-Month GAAP Operating Margin: 17%
Best known for its portfolio of powerhouse breakfast cereal brands, General Mills (NYSE:GIS) is a packaged foods company that has also made a mark in cereals, baking products, and snacks.
Why Do We Think Twice About GIS?
- Declining unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Projected sales decline of 4.2% for the next 12 months points to an even tougher demand environment ahead
- Earnings growth underperformed the sector average over the last three years as its EPS grew by just 2.2% annually
At $51.15 per share, General Mills trades at 13x forward P/E. To fully understand why you should be careful with GIS, check out our full research report (it’s free).
MSA Safety (MSA)
Trailing 12-Month GAAP Operating Margin: 23.2%
Founded in 1914 as Mine Safety Appliances to protect coal miners from dangerous gases, MSA Safety (NYSE:MSA) designs and manufactures advanced safety products that protect workers and facilities across industries including fire service, energy, construction, and manufacturing.
Why Does MSA Give Us Pause?
- Subscale operations are evident in its revenue base of $1.82 billion, meaning it has fewer distribution channels than its larger rivals
- Estimated sales growth of 3.5% for the next 12 months implies demand will slow from its two-year trend
MSA Safety’s stock price of $180.03 implies a valuation ratio of 21.7x forward P/E. Read our free research report to see why you should think twice about including MSA in your portfolio.
Stocks We Like More
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