Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. That said, here are three profitable companies to steer clear of and a few better alternatives.
Alta (ALTG)
Trailing 12-Month GAAP Operating Margin: 1.2%
Founded in 1984, Alta Equipment Group (NYSE: ALTG) is a provider of industrial and construction equipment and services across the Midwest and Northeast United States.
Why Do We Avoid ALTG?
- 3.7% annual revenue growth over the last two years was slower than its industrials peers
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- 5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Alta is trading at $7.51 per share, or 1.4x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including ALTG in your portfolio.
The Hanover Insurance Group (THG)
Trailing 12-Month GAAP Operating Margin: 12.4%
Founded in 1852 during a time when fire insurance was crucial for protecting businesses and homes, The Hanover Insurance Group (NYSE: THG) provides property and casualty insurance products through independent agents, serving individuals, small businesses, and mid-sized companies.
Why Does THG Give Us Pause?
- Sales trends were unexciting over the last two years as its 5.4% annual growth was below the typical insurance company
- Growth in insurance policies was lackluster over the last two years as its 5% annual growth underperformed the typical financial institution
- Capital trends were unexciting over the last five years as its 2% annual book value per share growth was below the typical insurance firm
At $174.65 per share, The Hanover Insurance Group trades at 1.9x forward P/B. If you’re considering THG for your portfolio, see our FREE research report to learn more.
Nelnet (NNI)
Trailing 12-Month GAAP Operating Margin: 27.7%
Starting as a student loan servicer in the 1970s and evolving through the changing landscape of education finance, Nelnet (NYSE: NNI) provides student loan servicing, education technology, payment processing, and banking services while managing a portfolio of education loans.
Why Does NNI Fall Short?
- Incremental sales over the last two years were less profitable as its earnings per share were flat while its revenue grew
Nelnet’s stock price of $124.31 implies a valuation ratio of 15.7x forward P/E. Read our free research report to see why you should think twice about including NNI in your portfolio.
Stocks We Like More
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