Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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 that don’t make the cut and some better opportunities instead.

Qorvo (QRVO)

Trailing 12-Month GAAP Operating Margin: 3.3%

Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.

Why Is QRVO Risky?

1. Sales trends were unexciting over the last five years as its 2.3% annual growth was below the typical semiconductor company
2. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 22.3 percentage points
3. 11.7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

Qorvo’s stock price of $92.05 implies a valuation ratio of 15.6x forward P/E. Dive into our free research report to see why there are better opportunities than QRVO.

Kadant (KAI)

Trailing 12-Month GAAP Operating Margin: 15.7%

Headquartered in Massachusetts, Kadant (NYSE: KAI) is a global supplier of high-value, critical components and engineered systems used in process industries worldwide.

Why Are We Wary of KAI?

1. Muted 4.9% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
2. Estimated sales growth of 3.1% for the next 12 months implies demand will slow from its two-year trend
3. Earnings per share were flat over the last two years and fell short of the peer group average

Kadant is trading at $328.21 per share, or 34.9x forward P/E. Read our free research report to see why you should think twice about including KAI in your portfolio.

Prospect Capital (PSEC)

Trailing 12-Month GAAP Operating Margin: 67.7%

Operating as one of the largest publicly traded business development companies in the United States, Prospect Capital (NASDAQ: PSEC) provides debt and equity financing to middle-market companies across various industries.

Why Do We Steer Clear of PSEC?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 8.1% annually over the last two years
2. Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 12.7% annually, worse than its revenue
3. Annual tangible book value per share declines of 4.3% for the past five years show its capital management struggled during this cycle

At $2.87 per share, Prospect Capital trades at 6.1x forward P/E. Check out our free in-depth research report to learn more about why PSEC doesn’t pass our bar.

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