3 Companies Losing Ground to the Competition

As a result, all of them have had lagging share prices. Has that created an opportunity?

| More on:
The Motley Fool

Companies always love to highlight to investors how profitable they are, and how quickly earnings can grow. But whenever a company makes a lot of money and has the potential to increase those earnings, that always provides plenty of inspiration for competitors. If competitors are able to steal share, those growth projections can go up in smoke.

On that note, below are three companies that are suffering that exact fate. You might want to be careful before buying their stocks.

1. Lululemon

Lululemon Athletica (NASDAQ: LULU) is one of the best examples of a company that makes incredibly high margins, inspiring plenty of competitors to enter the market. Last year’s numbers tell the story, with a gross profit margin above 50% and an operating income margin at nearly 25%.

Lululemon made things worse for itself with an embarrassing product recall, followed by ill-timed remarks from founder Chip Wilson late last year. As a result, the stock price has not done well, falling by nearly 50% over the past 12 months.

So has that created a buying opportunity? Well, not necessarily. The company still trades at more than 20 times earnings, a big number for a company facing intensifying competition. If Lululemon is unable to defend its turf, the stock could slide a lot further.

2. Thomson Reuters

Information services provider Thomson Reuters (TSX: TRI)(NYSE: TRI) has also had some trouble with competition, mainly in its financial and risk division. Powerful competitors like Bloomberg and low-cost alternatives like FactSet and Capital IQ have steadily been stealing share over the past five years.

Thomson has had the essentially same problem as Lululemon. The company makes a very nice profit margin on its products, providing plenty of incentive for competitors to step in. As a result, Thomson’s shares have only risen 4% per year over the past three years.

Has that created an opportunity to buy Thomson’s shares at a discount? Well, not really. The company trades at about 16 times forward earnings, and unlike Lululemon, is not even growing.

3. BlackBerry

BlackBerry (TSX: BB)(NASDAQ: BBRY) is the poster child in Canada for a company that made lots of money at one point, then got crushed by the competition. Just look at what happened in fiscal year 2008: the company’s gross margin was greater than 50% and operating margin was 29%. No wonder its competitors were so aggressive in trying to steal share.

Now of course the story is completely different, with BlackBerry losing money and new CEO John Chen trying to turn the company around. At this point, buying the company’s shares is really a bet on whether or not Mr. Chen will be successful. Time will tell if it’s a bet worth taking.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds no positions in any of the stocks mentioned in this article.

More on Investing

Arrowings ascending on a chalkboard

I Think They Can: 3 Stocks That Can Keep Chugging Higher

CN Rail (TSX:CNR) and other transport plays have what it takes to chug even higher from here!

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Dividend Stocks

Better Buy: Dollarama Stock or Alimentation Couche-Tard?

Take a closer look at these two defensive retail stocks to determine which might be a better holding to protect…

Read more »

Growing plant shoots on coins
Dividend Stocks

TFSA Dividend Stocks: How You Can Earn $400 Per Month of Growing Passive Income

Here's how you can buy top Canadian dividend stocks in your TFSA to build a rapidly and consistently growing passive-income…

Read more »

top TSX stocks to buy
Dividend Stocks

GICs vs. Dividend Stocks: Where to Invest for Passive Income in 2024?

Income-seeking investors can consider holding instruments such as GICs and dividend stocks to create a recurring revenue stream.

Read more »

Dollar symbol and Canadian flag on keyboard

If You Don’t Own This Canadian Stalwart Stock, You’re Missing Some Serious Stability

Here's why Royal Bank of Canada (TSX:RY) remains a stalwart long-term investors have done well to make a core holding.

Read more »

Payday ringed on a calendar
Dividend Stocks

Got $10,000 to Invest? How to Turn it Into Monthly Income

Canadians can produce recurring monthly income streams from a $10,000 investment in two high-yield real estate stocks.

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

How to Build a Bulletproof Dividend Portfolio Starting With Just $10,000

Want to earn a growing stream of dividend income? Here's how to invest $10,000 for a great combination of income…

Read more »

Wireless technology
Tech Stocks

Got $5,000? 2 Tech Stocks to Buy and Hold for the Long Term

Here are the best tech stocks to buy, with one offering long-term growth and the other offering strong business as…

Read more »