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".
Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. That said, here is one profitable company that generates reliable profits without sacrificing growth and two that may struggle to keep up.
Two Stocks to Sell:
Applied Industrial (AIT)
Trailing 12-Month GAAP Operating Margin: 10.9%
Formerly called The Ohio Ball Bearing Company, Applied Industrial (NYSE: AIT) distributes industrial products–everything from power tools to industrial valves–and services to a wide variety of industries.
Why Is AIT Not Exciting?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Projected sales growth of 5.2% for the next 12 months suggests sluggish demand
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 5% annually
At $281.86 per share, Applied Industrial trades at 25.4x forward P/E. Read our free research report to see why you should think twice about including AIT in your portfolio.
State Street (STT)
Trailing 12-Month GAAP Operating Margin: 30.2%
Dating back to 1792 when Boston's Long Wharf was the center of global shipping and trade, State Street (NYSE: STT) provides custody, investment management, and other financial services to institutional investors like pension funds, asset managers, and central banks worldwide.
Why Does STT Fall Short?
- The company has faced growth challenges as its 3.6% annual revenue increases over the last five years fell short of other financials companies
- Earnings per share lagged its peers over the last five years as they only grew by 9.1% annually
State Street’s stock price of $127.91 implies a valuation ratio of 11x forward P/E. Check out our free in-depth research report to learn more about why STT doesn’t pass our bar.
One Stock to Buy:
Micron (MU)
Trailing 12-Month GAAP Operating Margin: 32.5%
Founded in the basement of a Boise, Idaho dental office in 1978, Micron (NYSE: MU) is a leading provider of memory chips used in thousands of devices across mobile, data centers, industrial, consumer, and automotive markets.
Why Should You Buy MU?
- Annual revenue growth of 61.7% over the last two years was superb and indicates its market share increased during this cycle
- Projected revenue growth of 111% for the next 12 months is above its two-year trend, pointing to accelerating demand
- Earnings per share grew by 29.2% annually over the last five years and trumped its peers
Micron is trading at $426.70 per share, or 10.4x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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