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".
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.
Boyd Gaming (BYD)
Trailing 12-Month GAAP Operating Margin: 22.9%
Run by the Boyd family, Boyd Gaming (NYSE: BYD) is a diversified operator of gaming entertainment properties across the United States, offering casino games, hotel accommodations, and dining.
Why Do We Avoid BYD?
- 4.6% annual revenue growth over the last two years was slower than its consumer discretionary peers
- Projected sales decline of 12.1% for the next 12 months points to a tough demand environment ahead
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $84.60 per share, Boyd Gaming trades at 12.7x forward P/E. If you’re considering BYD for your portfolio, see our FREE research report to learn more.
Newmark (NMRK)
Trailing 12-Month GAAP Operating Margin: 5.6%
Founded in 1929, Newmark (NASDAQ: NMRK) provides commercial real estate services, including leasing advisory, global corporate services, investment sales and capital markets, property and facilities management, valuation and advisory, and consulting.
Why Are We Out on NMRK?
- Annual revenue growth of 7.4% over the last five years was below our standards for the consumer discretionary sector
- Poor free cash flow margin of 0% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- ROIC of 2.7% reflects management’s challenges in identifying attractive investment opportunities
Newmark is trading at $19.59 per share, or 12.4x forward P/E. Dive into our free research report to see why there are better opportunities than NMRK.
Jefferies (JEF)
Trailing 12-Month GAAP Operating Margin: 12.3%
Tracing its roots back to 1962 and rebranded from Leucadia National Corporation in 2018, Jefferies Financial Group (NYSE: JEF) is a global investment banking and capital markets firm that provides advisory services, securities trading, and asset management to corporations, institutions, and wealthy individuals.
Why Does JEF Give Us Pause?
- Below-average return on equity indicates management struggled to find compelling investment opportunities
- High net-debt-to-EBITDA ratio increases the risk of forced asset sales or dilutive financing if operational performance weakens
Jefferies’s stock price of $66.65 implies a valuation ratio of 1.4x forward P/E. To fully understand why you should be careful with JEF, check out our full research report (it’s free).
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