Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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 avoid and some better opportunities instead.
MarineMax (HZO)
Trailing 12-Month GAAP Operating Margin: 3%
Appropriately headquartered in Clearwater, Florida, MarineMax (NYSE:HZO) sells boats, yachts, and other marine products.
Why Do We Avoid HZO?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Earnings per share decreased by more than its revenue over the last three years, partly because it diluted shareholders
At $52.35 per share, MarineMax trades at 37.6x forward P/E. To fully understand why you should be careful with HZO, check out our full research report (it’s free).
Sirius XM (SIRI)
Trailing 12-Month GAAP Operating Margin: 19.1%
Known for its commercial-free music channels, Sirius XM (NASDAQ:SIRI) is a broadcasting company that provides satellite radio and online radio services across North America.
Why Are We Bearish on SIRI?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 1.8 percentage points over the next year
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Sirius XM’s stock price of $26.83 implies a valuation ratio of 8.4x forward P/E. If you’re considering SIRI for your portfolio, see our FREE research report to learn more.
Surgery Partners (SGRY)
Trailing 12-Month GAAP Operating Margin: 11.4%
With more than 180 locations across 33 states serving as alternatives to traditional hospital settings, Surgery Partners (NASDAQ:SGRY) operates a national network of outpatient surgical facilities including ambulatory surgery centers and short-stay surgical hospitals.
Why Are We Wary of SGRY?
- Underwhelming unit sales over the past two years suggest it might have to lower prices to accelerate growth
- Projected sales decline of 5.5% for the next 12 months points to a tough demand environment ahead
- High net-debt-to-EBITDA ratio of 7× could force the company to raise capital on unfavorable terms if market conditions deteriorate
Surgery Partners is trading at $14.76 per share, or 57x forward P/E. Check out our free in-depth research report to learn more about why SGRY doesn’t pass our bar.
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