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".
Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. Keeping that in mind, here is one profitable company that balances growth and profitability and two that may struggle to keep up.
Two Stocks to Sell:
McCormick (MKC)
Trailing 12-Month GAAP Operating Margin: 15.8%
The classic red Heinz ketchup bottle’s competitor, McCormick (NYSE:MKC) sells food-flavoring products like condiments, spices, and seasoning mixes.
Why Does MKC Worry Us?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Earnings per share lagged its peers over the last three years as they only grew by 2% annually
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 4.8 percentage points
McCormick’s stock price of $70.60 implies a valuation ratio of 22.3x forward P/E. Check out our free in-depth research report to learn more about why MKC doesn’t pass our bar.
Hilton (HLT)
Trailing 12-Month GAAP Operating Margin: 21.1%
Founded in 1919, Hilton Worldwide (NYSE:HLT) is a global hospitality company with a portfolio of hotel brands.
Why Do We Think Twice About HLT?
- Annual sales growth of 8.4% over the last two years lagged behind its consumer discretionary peers as its large revenue base made it difficult to generate incremental demand
- Weak revenue per room over the past two years indicates challenges in maintaining pricing power and occupancy rates
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 7.2%
At $274.07 per share, Hilton trades at 32.8x forward P/E. To fully understand why you should be careful with HLT, check out our full research report (it’s free).
One Stock to Watch:
Yum! Brands (YUM)
Trailing 12-Month GAAP Operating Margin: 30.9%
Spun off as an independent company from PepsiCo, Yum! Brands (NYSE:YUM) is a multinational corporation that owns KFC, Pizza Hut, Taco Bell, and The Habit Burger Grill.
Why Could YUM Be a Winner?
- Bold push to open new restaurants demonstrates an ambitious strategy to establish itself in underpenetrated territories
- Healthy operating margin of 31.9% shows it’s a well-run company with efficient processes
- Strong free cash flow margin of 19.3% enables it to reinvest or return capital consistently
Yum! Brands is trading at $146.89 per share, or 23.2x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
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