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".

A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. That said, here are three profitable companies to avoid and some better opportunities instead.

Wix (WIX)

Trailing 12-Month GAAP Operating Margin: 7.7%

Powering over 263 million registered users worldwide with its AI-driven tools, Wix (NASDAQ: WIX) provides a cloud-based platform that helps individuals and businesses create and manage professional websites without requiring coding skills.

Why Does WIX Fall Short?

1. Average billings growth of 14% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
2. High servicing costs result in a relatively inferior gross margin of 68.4% that must be offset through increased usage
3. Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage

At $137.90 per share, Wix trades at 3.8x forward price-to-sales. Dive into our free research report to see why there are better opportunities than WIX.

eBay (EBAY)

Trailing 12-Month GAAP Operating Margin: 21.4%

Originally known as the first online auction site, eBay (NASDAQ: EBAY) is one of the world’s largest online marketplaces.

Why Do We Think Twice About EBAY?

1. Active Buyers have stagnated over the last two years, indicating its platform may be struggling to differentiate itself from competitors
2. Underwhelming performance in both user spending and platform engagement suggests its platform is becoming less effective
3. Expenses have increased as a percentage of revenue over the last few years as its EBITDA margin fell by 4.3 percentage points

eBay’s stock price of $89.17 implies a valuation ratio of 11.9x forward EV/EBITDA. Check out our free in-depth research report to learn more about why EBAY doesn’t pass our bar.

Coty (COTY)

Trailing 12-Month GAAP Operating Margin: 4.1%

With a portfolio boasting many household brands, Coty (NYSE: COTY) is a beauty products powerhouse spanning cosmetics, fragrances, and skincare.

Why Do We Steer Clear of COTY?

1. Core business is underperforming as its organic revenue has disappointed over the past one years, suggesting it might need acquisitions to stimulate growth
2. Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
3. Low returns on capital reflect management’s struggle to allocate funds effectively

Coty is trading at $4.21 per share, or 9.5x forward P/E. Read our free research report to see why you should think twice about including COTY in your portfolio.

Stocks We Like More

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