3 Profitable Stocks with Open Questions

Even if a company is profitable, it doesn’t always mean it’s a great investment. Some struggle to maintain growth, face looming threats, or fail to reinvest wisely, limiting their future potential.

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.

OPENLANE (KAR)

Trailing 12-Month GAAP Operating Margin: 11.9%

Facilitating the sale of approximately 1.3 million used vehicles in 2023, OPENLANE (NYSE:KAR) operates digital marketplaces that connect sellers and buyers of used vehicles across North America and Europe, facilitating wholesale transactions.

Why Is KAR Risky?

1. Annual sales declines of 5.3% for the past five years show its products and services struggled to connect with the market during this cycle
2. ROIC of 2.6% reflects management’s challenges in identifying attractive investment opportunities
3. High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens

OPENLANE is trading at $28.09 per share, or 30.2x forward P/E. If you’re considering KAR for your portfolio, see our FREE research report to learn more.

State Street (STT)

Trailing 12-Month GAAP Operating Margin: 28.5%

Dating back to 1792 when Boston's Long Wharf was the center of global shipping and trade, State Street (NYSE:STT) provides custody, investment management, and other financial services to institutional investors like pension funds, asset managers, and central banks worldwide.

Why Should You Sell STT?

1. Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 2.3% for the last five years
2. Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 5.2% annually
3. Below-average return on equity indicates management struggled to find compelling investment opportunities

At $115.71 per share, State Street trades at 11x forward P/E. To fully understand why you should be careful with STT, check out our full research report (it’s free).

Cohen & Steers (CNS)

Trailing 12-Month GAAP Operating Margin: 33.7%

Founded in 1986 as a pioneer in real estate investment trusts (REITs), Cohen & Steers (NYSE:CNS) is an investment manager specializing in real estate securities, infrastructure, real assets, and preferred securities for institutional and individual investors.

Why Does CNS Fall Short?

1. Annual revenue growth of 2.2% over the last four years was below our standards for the financials sector
2. Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 2.2% annually

Cohen & Steers’s stock price of $66.41 implies a valuation ratio of 20.7x forward P/E. Read our free research report to see why you should think twice about including CNS in your portfolio.

Stocks We Like More

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