Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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. That said, here are three profitable companies to avoid and some better opportunities instead.
Accel Entertainment (ACEL)
Trailing 12-Month GAAP Operating Margin: 7.5%
Established in Illinois, Accel Entertainment (NYSE:ACEL) is a provider of electronic gaming machines and interactive amusement terminals to bars and entertainment venues.
Why Does ACEL Worry Us?
- Number of video gaming terminals sold has disappointed over the past two years, indicating weak demand for its offerings
- Anticipated sales growth of 6.4% for the next year implies demand will be shaky
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Accel Entertainment is trading at $10.50 per share, or 10.6x forward P/E. Dive into our free research report to see why there are better opportunities than ACEL.
European Wax Center (EWCZ)
Trailing 12-Month GAAP Operating Margin: 22.1%
Founded by two siblings, European Wax Center (NASDAQ:EWCZ) is a beauty and waxing salon chain specializing in professional wax services and skincare products.
Why Does EWCZ Give Us Pause?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Underwhelming 10.5% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $3.42 per share, European Wax Center trades at 6.4x forward P/E. If you’re considering EWCZ for your portfolio, see our FREE research report to learn more.
Integer Holdings (ITGR)
Trailing 12-Month GAAP Operating Margin: 12.5%
With its name reflecting the mathematical term for "whole" or "complete," Integer Holdings (NYSE:ITGR) is a medical device outsource manufacturer that produces components and systems for cardiac, vascular, neurological, and other medical applications.
Why Does ITGR Fall Short?
- Modest revenue base of $1.79 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Free cash flow margin shrank by 5.3 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Integer Holdings’s stock price of $102.10 implies a valuation ratio of 14.9x forward P/E. Read our free research report to see why you should think twice about including ITGR in your portfolio.
Stocks We Like More
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