Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. Keeping that in mind, here is one profitable company that balances growth and profitability and two best left off your watchlist.
Two Stocks to Sell:
Lennar (LEN)
Trailing 12-Month GAAP Operating Margin: 12.8%
One of the largest homebuilders in America, Lennar (NYSE:LEN) is known for constructing affordable, move-up, and retirement homes across a range of markets and communities.
Why Are We Out on LEN?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 22.1% decline in its backlog
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 10.8% annually
- Free cash flow margin shrank by 13.3 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Lennar is trading at $107.60 per share, or 8.4x forward P/E. Read our free research report to see why you should think twice about including LEN in your portfolio.
Encompass Health (EHC)
Trailing 12-Month GAAP Operating Margin: 16.9%
With a network of 161 specialized facilities across 37 states and Puerto Rico, Encompass Health (NYSE:EHC) operates inpatient rehabilitation hospitals that help patients recover from strokes, hip fractures, and other debilitating conditions.
Why Are We Wary of EHC?
- Expenses have increased as a percentage of revenue over the last two years as its adjusted operating margin fell by 4 percentage points
- Incremental sales over the last five years were less profitable as its 4.6% annual earnings per share growth lagged its revenue gains
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 2.2 percentage points
At $118.99 per share, Encompass Health trades at 23.6x forward P/E. Check out our free in-depth research report to learn more about why EHC doesn’t pass our bar.
One Stock to Watch:
HCA Healthcare (HCA)
Trailing 12-Month GAAP Operating Margin: 14.7%
With roots dating back to 1968 and a network spanning 20 states, HCA Healthcare (NYSE:HCA) operates a network of 190 hospitals and 150+ outpatient facilities providing a full range of medical services across the US and England.
Why Does HCA Stand Out?
- Unparalleled scale of $71.59 billion in revenue gives it negotiating leverage and staying power in an industry with high barriers to entry
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 20.7% exceeded its revenue gains over the last five years
- Market-beating returns on capital illustrate that management has a knack for investing in profitable ventures
HCA Healthcare’s stock price of $343.04 implies a valuation ratio of 13.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even 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 United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.