Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. Keeping that in mind, here are three profitable companies to avoid and some better opportunities instead.
Cadre (CDRE)
Trailing 12-Month GAAP Operating Margin: 12.3%
Originally known as Safariland, Cadre (NYSE: CDRE) specializes in manufacturing and distributing safety and survivability equipment for first responders.
Why Do We Think Twice About CDRE?
- Estimated sales growth of 6.7% for the next 12 months implies demand will slow from its two-year trend
- Earnings per share lagged its peers over the last four years as they only grew by 1.8% annually
- Eroding returns on capital suggest its historical profit centers are aging
Cadre is trading at $42.95 per share, or 28.7x forward P/E. Read our free research report to see why you should think twice about including CDRE in your portfolio.
Toll Brothers (TOL)
Trailing 12-Month GAAP Operating Margin: 17%
Started by two brothers who started by building and selling just one home in Pennsylvania, today Toll Brothers (NYSE: TOL) is a luxury homebuilder across the United States.
Why Does TOL Fall Short?
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 6.3% declines over the past two years
- Earnings per share have dipped by 1.4% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Free cash flow margin dropped by 6.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $130.78 per share, Toll Brothers trades at 9.6x forward P/E. To fully understand why you should be careful with TOL, check out our full research report (it’s free for active Edge members).
Northern Trust (NTRS)
Trailing 12-Month GAAP Operating Margin: 30.4%
Founded in 1889 during Chicago's post-Great Fire rebuilding boom, Northern Trust (NASDAQ: NTRS) provides wealth management, asset servicing, and banking solutions to corporations, institutions, families, and high-net-worth individuals globally.
Why Are We Hesitant About NTRS?
- Annual revenue growth of 5.3% over the last five years was below our standards for the financials sector
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 6.6% annually
Northern Trust’s stock price of $127.29 implies a valuation ratio of 14x forward P/E. Dive into our free research report to see why there are better opportunities than NTRS.
Stocks We Like More
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