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. That said, here is one profitable company that generates reliable profits without sacrificing growth and two that may face some trouble.
Two Stocks to Sell:
Leggett & Platt (LEG)
Trailing 12-Month GAAP Operating Margin: 6.5%
Founded in 1883, Leggett & Platt (NYSE: LEG) is a diversified manufacturer of products and components for various industries.
Why Do We Avoid LEG?
- Products and services fail to spark excitement with consumers, as seen in its flat sales over the last five years
- Earnings per share fell by 11.8% annually over the last five years while its revenue was flat, showing each sale was less profitable
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $9.43 per share, Leggett & Platt trades at 8.1x forward P/E. If you’re considering LEG for your portfolio, see our FREE research report to learn more.
Luxfer (LXFR)
Trailing 12-Month GAAP Operating Margin: 9.5%
With its magnesium alloys used in the construction of the famous Spirit of St. Louis aircraft, Luxfer (NYSE: LXFR) offers specialized materials, components, and gas containment devices to various industries.
Why Do We Think LXFR Will Underperform?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.9% annually over the last two years
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.8 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Luxfer’s stock price of $13.24 implies a valuation ratio of 12x forward P/E. Check out our free in-depth research report to learn more about why LXFR doesn’t pass our bar.
One Stock to Buy:
SoFi (SOFI)
Trailing 12-Month GAAP Operating Margin: 10.3%
Starting as a student loan refinancing company founded by Stanford business school students in 2011, SoFi Technologies (NASDAQ: SOFI) operates a digital financial platform offering lending, banking, investing, and other financial services to help members borrow, save, spend, invest, and protect their money.
Why Are We Bullish on SOFI?
- Market share has increased this cycle as its 28.5% annual revenue growth over the last two years was exceptional
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 75.9% annually, topping its revenue gains
SoFi is trading at $24.45 per share, or 66x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
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