Darling Ingredients Stands Out While Bath & Body Works and PENN Entertainment Raise Red Flags

Profitability Alone Doesn't Tell the Whole Story for These Three Stocks

When screening for investment opportunities, many investors zero in on profitability as a primary filter — but a positive bottom line doesn't automatically signal a healthy or durable business. A closer look at Darling Ingredients (NYSE: DAR), Bath & Body Works (NYSE: BBWI), and PENN Entertainment (NASDAQ: PENN) reveals just how different the underlying stories can be for three companies that are all technically in the black.

Bath & Body Works (BBWI): Margins Under Pressure

Bath & Body Works, which was spun off from L Brands back in 2020, has built a recognizable brand around specialty personal care products and home fragrances — think signature shower gels, scented candles, and lotions sold primarily through its own retail stores.

On the surface, a trailing 12-month GAAP operating margin of 15.8% looks respectable. However, several underlying metrics suggest the retailer is facing meaningful headwinds.

Same-store sales have been disappointing for two consecutive years, indicating that consumers may not be responding enthusiastically to its product mix or in-store experience. Forward-looking revenue projections paint a similarly cautious picture, with analysts forecasting a 1.7% decline over the next 12 months — suggesting demand pressures could intensify rather than ease.

Earnings growth has also lagged peers. Over the past three years, BBWI's earnings per share expanded at just 4.5% annually, trailing the broader peer group average. At its current stock price of $19.41, the company trades at a forward price-to-earnings ratio of 7.5x — a valuation that reflects the market's tempered expectations.

PENN Entertainment (PENN): Cash Flow Constraints Cloud the Outlook

PENN Entertainment, founded in 1982, operates a diversified portfolio of casinos, sports betting platforms, and entertainment venues across the United States. The company has been navigating a rapidly evolving gaming landscape, particularly as digital sports wagering has reshaped the industry.

With a trailing 12-month GAAP operating margin of just 5.3%, PENN's profitability is noticeably thin compared to peers. More concerning is the company's free cash flow margin, which has averaged a negative 0.3% over the past two years. Negative free cash flow limits a company's flexibility — constraining its capacity to reinvest in growth, pay down debt, or return capital to shareholders.

Revenue growth has also been modest, averaging 7.5% annually over the past five years, a pace that has trailed many consumer discretionary competitors. Additionally, data indicates that returns on capital have been declining from an already low starting point, raising questions about the effectiveness of recent capital allocation decisions.

PENN shares are currently priced at $18.97, implying a forward P/E of 16.9x — a multiple that some analysts may view as demanding given the company's current cash flow profile.

Darling Ingredients (DAR): Operational Improvements Gaining Traction

In contrast to the challenges facing BBWI and PENN, Darling Ingredients presents a notably different operational trajectory. The company operates in a distinctive niche — collecting and processing animal by-products, used cooking oil, and other biological materials, then transforming them into ingredients for food, animal feed, renewable fuels, and industrial applications.

Darling's trailing 12-month GAAP operating margin stands at 14.5%, and more importantly, it has expanded by 9.5 percentage points over the past year alone — a significant improvement that points to meaningful progress in cost management and operational efficiency.

Free cash flow margin also improved, growing by 3.8 percentage points over the same period, providing the company with greater financial flexibility. Perhaps most telling is Darling's return on invested capital (ROIC) of 16.1%, a figure that analysts often view as an indicator of management's ability to deploy capital into genuinely value-creating projects.

At $62.17 per share, DAR trades at a forward P/E of 9.6x — a relatively modest multiple given the recent improvement in its financial metrics.

What Investors Should Watch

These three companies illustrate that profitability is just one piece of a much larger puzzle. For Bath & Body Works, the key metrics to monitor will be same-store sales trends and whether management can stabilize revenue. For PENN Entertainment, free cash flow generation and capital efficiency will be critical signals going forward.

For Darling Ingredients, the sustainability of its margin expansion and ROIC improvements will determine whether its recent operational gains represent a durable shift or a temporary tailwind. As renewable fuel demand evolves and feedstock markets fluctuate, the company's ability to maintain these improvements will be closely watched by market participants.