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 are three profitable companies that don’t make the cut and some better opportunities instead.
MSA Safety (MSA)
Trailing 12-Month GAAP Operating Margin: 23.2%
Founded in 1914 as Mine Safety Appliances to protect coal miners from dangerous gases, MSA Safety (NYSE: MSA) designs and manufactures advanced safety products that protect workers and facilities across industries including fire service, energy, construction, and manufacturing.
Why Does MSA Fall Short?
- Modest revenue base of $1.82 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Estimated sales growth of 2.6% for the next 12 months implies demand will slow from its two-year trend
- Free cash flow margin didn’t grow over the last five years
MSA Safety is trading at $155.80 per share, or 18.8x forward P/E. Check out our free in-depth research report to learn more about why MSA doesn’t pass our bar.
Bausch + Lomb (BLCO)
Trailing 12-Month GAAP Operating Margin: 1.5%
With a nearly 170-year history dedicated to vision care and eye health innovation, Bausch + Lomb (NYSE: BLCO) develops and manufactures a comprehensive range of eye health products including contact lenses, pharmaceuticals, surgical devices, and consumer eye care solutions.
Why Do We Think Twice About BLCO?
- Muted 5.3% annual revenue growth over the last five years shows its demand lagged behind its healthcare peers
- Free cash flow margin shrank by 20.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $11.40 per share, Bausch + Lomb trades at 14.4x forward P/E. If you’re considering BLCO for your portfolio, see our FREE research report to learn more.
ScanSource (SCSC)
Trailing 12-Month GAAP Operating Margin: 2.9%
Operating as a crucial link in the technology supply chain since 1992, ScanSource (NASDAQ: SCSC) is a hybrid distributor that connects hardware, software, and cloud services from technology suppliers to resellers and business customers.
Why Do We Avoid SCSC?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 10.4% annually over the last two years
- Sales were less profitable over the last two years as its earnings per share fell by 11.7% annually, worse than its revenue declines
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
ScanSource’s stock price of $36.12 implies a valuation ratio of 9.8x forward P/E. Read our free research report to see why you should think twice about including SCSC in your portfolio.
Stocks We Like More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
