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. Keeping that in mind, here are three profitable companies that don’t make the cut and some better opportunities instead.
Dayforce (DAY)
Trailing 12-Month GAAP Operating Margin: 7%
Rebranded from Ceridian in January 2024 to highlight its flagship product, Dayforce (NYSE:DAY) provides cloud-based software that helps organizations manage their entire employee lifecycle, including HR, payroll, workforce management, benefits, and talent development.
Why Do We Think Twice About DAY?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 12% underwhelmed
- Gross margin of 50.9% reflects its high servicing costs
- Static operating margin over the last year shows it couldn’t become more efficient
At $68.85 per share, Dayforce trades at 5.2x forward price-to-sales. Check out our free in-depth research report to learn more about why DAY doesn’t pass our bar.
Kontoor Brands (KTB)
Trailing 12-Month GAAP Operating Margin: 10.6%
Founded in 2019 after separating from VF Corporation, Kontoor Brands (NYSE:KTB) is a clothing company known for its high-quality denim products.
Why Are We Hesitant About KTB?
- 3% annual revenue growth over the last two years was slower than its consumer discretionary peers
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Diminishing returns on capital suggest its earlier profit pools are drying up
Kontoor Brands’s stock price of $69.96 implies a valuation ratio of 12.2x forward P/E. If you’re considering KTB for your portfolio, see our FREE research report to learn more.
Sirius XM (SIRI)
Trailing 12-Month GAAP Operating Margin: 20.5%
Known for its commercial-free music channels, Sirius XM (NASDAQ:SIRI) is a broadcasting company that provides satellite radio and online radio services across North America.
Why Do We Think SIRI Will Underperform?
- Number of core subscribers has disappointed over the past two years, indicating weak demand for its offerings
- Sales are projected to be flat over the next 12 months and imply weak demand
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Sirius XM is trading at $21.12 per share, or 7x forward P/E. Dive into our free research report to see why there are better opportunities than SIRI.
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