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 leverages its financial strength to beat the competition and two that may struggle to keep up.
Two Stocks to Sell:
SunOpta (STKL)
Trailing 12-Month GAAP Operating Margin: 3.9%
Committed to clean-label foods, SunOpta (NASDAQ: STKL) is a sustainability-focused food and beverage company specializing in the sourcing, processing, and packaging of organic products.
Why Should You Dump STKL?
- Sales tumbled by 1.6% annually over the last three years, showing consumer trends are working against its favor
- Modest revenue base of $792.4 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 15.4%
At $3.78 per share, SunOpta trades at 26x forward P/E. To fully understand why you should be careful with STKL, check out our full research report (it’s free for active Edge members).
Leggett & Platt (LEG)
Trailing 12-Month GAAP Operating Margin: 8.8%
Founded in 1883, Leggett & Platt (NYSE: LEG) is a diversified manufacturer of products and components for various industries.
Why Should You Sell LEG?
- Products and services fail to spark excitement with consumers, as seen in its flat sales over the last five years
- Low free cash flow margin of 6.1% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Leggett & Platt is trading at $11.05 per share, or 10.1x forward P/E. Check out our free in-depth research report to learn more about why LEG doesn’t pass our bar.
One Stock to Watch:
Mueller Water Products (MWA)
Trailing 12-Month GAAP Operating Margin: 18.2%
As one of the oldest companies in the water infrastructure industry, Mueller (NYSE: MWA) is a provider of water infrastructure products and flow control systems for various sectors.
Why Could MWA Be a Winner?
- Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Additional sales over the last two years increased its profitability as the 43.1% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin jumped by 3.6 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Mueller Water Products’s stock price of $24.79 implies a valuation ratio of 17.9x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .
High-Quality Stocks for All Market Conditions
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