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. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.
Whirlpool (WHR)
Trailing 12-Month GAAP Operating Margin: 4.2%
Credited with introducing the first automatic washing machine, Whirlpool (NYSE:WHR) is a manufacturer of a variety of home appliances.
Why Do We Avoid WHR?
- Annual sales declines of 7.3% for the past five years show its products and services struggled to connect with the market during this cycle
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 38.4% annually, worse than its revenue
At $28.17 per share, Whirlpool trades at 9x forward P/E. Dive into our free research report to see why there are better opportunities than WHR.
ExxonMobil (XOM)
Trailing 12-Month GAAP Operating Margin: 12.5%
One of the successor companies to John D. Rockefeller's Standard Oil monopoly that was broken up in 1911, ExxonMobil (NYSE:XOM) explores for and produces crude oil and natural gas, refines and sells petroleum products, and manufactures petrochemicals.
Why Does XOM Worry Us?
- Gross margin of 43.9% reflects its high production costs and unfavorable asset base
- Expenses have increased as a percentage of revenue over the last five years as its EBITDA margin fell by 1.3 percentage points
ExxonMobil’s stock price of $174.55 implies a valuation ratio of 13.4x forward P/E. To fully understand why you should be careful with XOM, check out our full research report (it’s free).
Excelerate Energy (EE)
Trailing 12-Month GAAP Operating Margin: 21.8%
Operating specialized vessels that can deliver up to 1.2 billion cubic feet of natural gas per day, Excelerate Energy (NYSE:EE) provides liquified natural gas regasification services using floating vessels that convert LNG back into natural gas.
Why Do We Think Twice About EE?
- Revenue base of $1.47 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Gross margin of 29.9% is below its competitors, leaving less money to invest in exploration and production
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Excelerate Energy is trading at $32.15 per share, or 17x forward P/E. Read our free research report to see why you should think twice about including EE in your portfolio.
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