While profitability is essential, it doesn’t guarantee long-term success. Some companies that rest on their margins will lose ground as competition intensifies - as Jeff Bezos said, "Your margin is my opportunity".
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 are three profitable companies to steer clear of and a few better alternatives.
Old Dominion Freight Line (ODFL)
Trailing 12-Month GAAP Operating Margin: 24.8%
With its name deriving from the Commonwealth of Virginia’s nickname, Old Dominion (NASDAQ: ODFL) delivers less-than-truckload (LTL) and full-container load freight.
Why Is ODFL Not Exciting?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 3.2% annually over the last two years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Waning returns on capital imply its previous profit engines are losing steam
At $180.73 per share, Old Dominion Freight Line trades at 36.6x forward P/E. To fully understand why you should be careful with ODFL, check out our full research report (it’s free).
Matson (MATX)
Trailing 12-Month GAAP Operating Margin: 14.3%
Founded by a Swedish orphan, Matson (NYSE: MATX) is a provider of ocean transportation and logistics services.
Why Do We Think Twice About MATX?
- 4% annual revenue growth over the last two years was slower than its industrials peers
- Free cash flow margin dropped by 12.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Eroding returns on capital suggest its historical profit centers are aging
Matson’s stock price of $155.07 implies a valuation ratio of 11.9x forward P/E. Check out our free in-depth research report to learn more about why MATX doesn’t pass our bar.
Landstar (LSTR)
Trailing 12-Month GAAP Operating Margin: 3.2%
Covering billions of miles throughout North America, Landstar (NASDAQ: LSTR) is a transportation company specializing in freight and last-mile delivery services.
Why Do We Pass on LSTR?
- Sales tumbled by 5.4% annually over the last two years, showing market trends are working against its favor during this cycle
- Earnings per share have contracted by 6.1% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Landstar is trading at $148.50 per share, or 28.1x forward P/E. If you’re considering LSTR for your portfolio, see our FREE research report to learn more.
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