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".
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 are three profitable companies to steer clear of and a few better alternatives.
ZoomInfo (GTM)
Trailing 12-Month GAAP Operating Margin: 18.1%
Operating a platform it calls "RevOS" - short for Revenue Operating System - ZoomInfo (NASDAQ: GTM) provides sales, marketing, and recruiting teams with business intelligence and analytics to identify prospects and deliver targeted outreach.
Why Do We Think GTM Will Underperform?
- Offerings struggled to generate interest as its billings were flat over the last year
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- Projected 4.6 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
ZoomInfo is trading at $6.46 per share, or 1.6x forward price-to-sales. Dive into our free research report to see why there are better opportunities than GTM.
Mayville Engineering (MEC)
Trailing 12-Month GAAP Operating Margin: 4.6%
Originally founded solely on tool and die manufacturing, Mayville Engineering Company (NYSE: MEC) specializes in metal fabrication, tube bending, and welding to be used in various industries.
Why Does MEC Worry Us?
- Annual sales declines of 3.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Gross margin of 12.8% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Earnings per share have dipped by 52.4% annually over the past two years, which is concerning because stock prices follow EPS over the long term
Mayville Engineering’s stock price of $22.00 implies a valuation ratio of 95.4x forward P/E. Check out our free in-depth research report to learn more about why MEC doesn’t pass our bar.
Voya Financial (VOYA)
Trailing 12-Month GAAP Operating Margin: 10.8%
Originally spun off from Dutch financial giant ING in 2013 and rebranded with a name suggesting "voyage," Voya Financial (NYSE: VOYA) provides workplace benefits and savings solutions to U.S. employers, helping their employees achieve better financial outcomes through retirement plans and insurance products.
Why Are We Hesitant About VOYA?
- Annual revenue growth of 6.5% over the last two years was below our standards for the financials sector
- Performance over the past two years shows its incremental sales were less profitable, as its 5.4% annual earnings per share growth trailed its revenue gains
- Annual tangible book value per share declines of 8.3% for the past five years show its capital management struggled during this cycle
At $74.54 per share, Voya Financial trades at 7.5x forward P/E. To fully understand why you should be careful with VOYA, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
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