In This Article:
Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
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 generates reliable profits without sacrificing growth and two that may struggle to keep up.
Two Stocks to Sell:
Labcorp (LH)
Trailing 12-Month GAAP Operating Margin: 8.3%
With over 600 million tests performed annually and involvement in 90% of FDA-approved drugs in 2023, Labcorp (NYSE:LH) provides laboratory testing services and drug development solutions to doctors, hospitals, pharmaceutical companies, and patients worldwide.
Why Does LH Worry Us?
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Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
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Efficiency has decreased over the last five years as its adjusted operating margin fell by 13.3 percentage points
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Waning returns on capital imply its previous profit engines are losing steam
Labcorp is trading at $245.90 per share, or 14.9x forward P/E. Check out our free in-depth research report to learn more about why LH doesn’t pass our bar.
Agilent (A)
Trailing 12-Month GAAP Operating Margin: 22.7%
Originally spun off from Hewlett-Packard in 1999 as its measurement and analytical division, Agilent Technologies (NYSE:A) provides analytical instruments, software, services, and consumables for laboratory workflows in life sciences, diagnostics, and applied chemical markets.
Why Are We Wary of A?
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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
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Estimated sales growth of 4.1% for the next 12 months is soft and implies weaker demand
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Overall productivity fell over the last two years as its plummeting sales were accompanied by a decline in its adjusted operating margin
At $107 per share, Agilent trades at 18.8x forward P/E. To fully understand why you should be careful with A, check out our full research report (it’s free).
One Stock to Buy:
Costco (COST)
Trailing 12-Month GAAP Operating Margin: 3.7%
Designed to be a one-stop shop for the suburban consumer, Costco (NASDAQ:COST) is a membership-only retail chain that sells groceries, apparel, toys, and household items, often in bulk quantities.
Why Will COST Outperform?
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Same-store sales growth averaged 4.4% over the past two years, showing it’s bringing new and repeat shoppers into its stores
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Dominant market position is represented by its $264.1 billion in revenue, which compensates for its subpar gross margin
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Market-beating returns on capital illustrate that management has a knack for investing in profitable ventures