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 to avoid and some better opportunities instead.
Teradyne (TER)
Trailing 12-Month GAAP Operating Margin: 21.9%
Sporting most major chip manufacturers as its customers, Teradyne (NASDAQ:TER) is a US-based supplier of automated test equipment for semiconductors as well as other technologies and devices.
Why Do We Think Twice About TER?
- Sales trends were unexciting over the last five years as its 3% annual growth was below the typical semiconductor company
- Estimated sales growth of 2.4% for the next 12 months is soft and implies weaker demand
- Efficiency has decreased over the last five years as its operating margin fell by 7.9 percentage points
Teradyne is trading at $92.67 per share, or 25.8x forward P/E. To fully understand why you should be careful with TER, check out our full research report (it’s free).
Allient (ALNT)
Trailing 12-Month GAAP Operating Margin: 5.4%
Founded in 1962, Allient (NASDAQ:ALNT) develops and manufactures precision and specialty-controlled motion components and systems.
Why Do We Think ALNT Will Underperform?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.7% annually over the last two years
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.7%
- Performance over the past two years was negatively impacted by new share issuances as its earnings per share dropped by 16% annually, worse than its revenue
Allient’s stock price of $40 implies a valuation ratio of 20.3x forward P/E. Read our free research report to see why you should think twice about including ALNT in your portfolio.
Interpublic Group (IPG)
Trailing 12-Month GAAP Operating Margin: 10.9%
With a history dating back to 1902 and roots in the McCann-Erickson agency, Interpublic Group (NYSE:IPG) is a marketing and communications holding company that owns agencies specializing in advertising, media buying, public relations, and digital marketing services.
Why Should You Dump IPG?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 9.6 percentage points
At $25.38 per share, Interpublic Group trades at 9.4x forward P/E. Check out our free in-depth research report to learn more about why IPG doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
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