While profitability is essential, it doesn’t guarantee long-term success. Some companies that rest on their margins will lose ground as competition intensifies - as Jeff Bezos said, "Your margin is my opportunity".
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 that don’t make the cut and some better opportunities instead.
Angi (ANGI)
Trailing 12-Month GAAP Operating Margin: 4.4%
Created by IAC’s mergers of Angie’s List and HomeAdvisor, ANGI (NASDAQ: ANGI) operates the largest online marketplace for home services in the US.
Why Is ANGI Not Exciting?
- Intense competition is diverting traffic from its platform as its service requests fell by 22.5% annually
- Projected sales decline of 1.6% over the next 12 months indicates demand will continue deteriorating
- Excessive marketing spend signals little organic demand and traction for its platform
At $17.72 per share, Angi trades at 5.8x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than ANGI.
Target (TGT)
Trailing 12-Month GAAP Operating Margin: 5.1%
With a higher focus on style and aesthetics compared to other large general merchandise retailers, Target (NYSE: TGT) serves the suburban consumer who is looking for a wide range of products under one roof.
Why Do We Think Twice About TGT?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Gross margin of 28.1% is an output of its commoditized inventory
- Performance over the past six years shows its incremental sales were much less profitable, as its earnings per share fell by 4.2% annually
Target is trading at $96.15 per share, or 12.5x forward P/E. Check out our free in-depth research report to learn more about why TGT doesn’t pass our bar.
Perdoceo Education (PRDO)
Trailing 12-Month GAAP Operating Margin: 24.3%
Formerly known as Career Education Corporation, Perdoceo Education (NASDAQ: PRDO) is an educational services company that specializes in postsecondary education.
Why Are We Wary of PRDO?
- Sales trends were unexciting over the last two years as its 2.9% annual growth was below the typical consumer discretionary company
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Perdoceo Education’s stock price of $32.74 implies a valuation ratio of 20.9x forward EV-to-EBITDA. If you’re considering PRDO for your portfolio, see our FREE research report to learn more.
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