Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. That said, here are three profitable companies to steer clear of and a few better alternatives.
Qualys (QLYS)
Trailing 12-Month GAAP Operating Margin: 31%
Originally developed to address the growing complexity of IT security in the cloud era, Qualys (NASDAQ:QLYS) provides a cloud-based platform that helps organizations identify, manage, and protect their IT assets from cyber threats across on-premises, cloud, and mobile environments.
Why Does QLYS Fall Short?
- Underwhelming ARR growth of 9.6% over the last year suggests the company faced challenges in acquiring and retaining long-term customers
- Estimated sales growth of 6.8% for the next 12 months implies demand will slow from its two-year trend
- Operating margin was unchanged over the last year, suggesting it failed to gain leverage on its fixed costs
Qualys’s stock price of $126.05 implies a valuation ratio of 6.9x forward price-to-sales. Check out our free in-depth research report to learn more about why QLYS doesn’t pass our bar.
Sabre (SABR)
Trailing 12-Month GAAP Operating Margin: 11.4%
Originally a division of American Airlines, Sabre (NASDAQ:SABR) is a technology provider for the global travel and tourism industry.
Why Is SABR Not Exciting?
- Demand for its offerings was relatively low as its number of central reservation system transactions has underwhelmed
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $2.17 per share, Sabre trades at 8.6x forward P/E. To fully understand why you should be careful with SABR, check out our full research report (it’s free for active Edge members).
H&R Block (HRB)
Trailing 12-Month GAAP Operating Margin: 22%
Founded in 1955 by brothers Henry W. Bloch and Richard A. Bloch, H&R Block (NYSE:HRB) is a tax preparation company offering professional tax assistance and financial solutions to individuals and small businesses.
Why Are We Hesitant About HRB?
- Sales trends were unexciting over the last two years as its 4.1% annual growth was below the typical consumer discretionary company
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.3%
- Diminishing returns on capital suggest its earlier profit pools are drying up
H&R Block is trading at $52.92 per share, or 10.4x forward P/E. Dive into our free research report to see why there are better opportunities than HRB.
Stocks We Like More
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