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. Keeping that in mind, here is one profitable company that generates reliable profits without sacrificing growth and two best left off your watchlist.
Two Stocks to Sell:
Honeywell (HON)
Trailing 12-Month GAAP Operating Margin: 18.9%
Originally founded in 1906 as a thermostat company, Honeywell (NASDAQ: HON) is a multinational conglomerate known for its aerospace systems, building technologies, performance materials, and safety and productivity solutions.
Why Does HON Worry Us?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 3.1 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Honeywell’s stock price of $234.86 implies a valuation ratio of 22.4x forward P/E. Check out our free in-depth research report to learn more about why HON doesn’t pass our bar.
Privia Health (PRVA)
Trailing 12-Month GAAP Operating Margin: 1.4%
Operating in 13 states and the District of Columbia with over 4,300 providers serving more than 4.8 million patients, Privia Health (NASDAQ: PRVA) is a technology-driven company that helps physicians optimize their practices, improve patient experiences, and transition to value-based care models.
Why Does PRVA Give Us Pause?
- Revenue base of $2.04 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Poor free cash flow margin of 4.3% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Push for growth has led to negative returns on capital, signaling value destruction
At $21.50 per share, Privia Health trades at 22.9x forward P/E. Dive into our free research report to see why there are better opportunities than PRVA.
One Stock to Buy:
HEICO (HEI)
Trailing 12-Month GAAP Operating Margin: 22.7%
Founded in 1957, HEICO (NYSE: HEI) manufactures and services aerospace and electronic components for commercial aviation, defense, space, and other industries.
Why Is HEI a Top Pick?
- Average organic revenue growth of 9.4% over the past two years demonstrates its ability to expand independently without relying on acquisitions
- Earnings per share grew by 29.9% annually over the last two years, massively outpacing its peers
- Robust free cash flow margin of 17.7% gives it many options for capital deployment
HEICO is trading at $324.50 per share, or 58.6x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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