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. That said, here are three profitable companies to steer clear of and a few better alternatives.

Church & Dwight (CHD)

Trailing 12-Month GAAP Operating Margin: 11.9%

Best known for its Arm & Hammer baking soda, Church & Dwight (NYSE: CHD) is a household and personal care products company with a vast portfolio that spans laundry detergent to toothbrushes to hair removal creams.

Why Are We Cautious About CHD?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Estimated sales growth of 3.3% for the next 12 months is soft and implies weaker demand
3. Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 6.7 percentage points

Church & Dwight’s stock price of $87.25 implies a valuation ratio of 24.4x forward P/E. Dive into our free research report to see why there are better opportunities than CHD.

Genco (GNK)

Trailing 12-Month GAAP Operating Margin: 10.6%

Headquartered in NYC, Genco (NYSE: GNK) is a shipping company that transports dry bulk cargo along worldwide maritime routes.

Why Are We Wary of GNK?

1. Demand for its offerings was relatively low as its number of owned vessels has underwhelmed
2. Earnings per share have contracted by 61.9% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 26.4 percentage points

At $16.29 per share, Genco trades at 18.6x forward P/E. To fully understand why you should be careful with GNK, check out our full research report (it’s free for active Edge members).

Labcorp (LH)

Trailing 12-Month GAAP Operating Margin: 8.8%

With over 600 million tests performed annually and involvement in 90% of FDA-approved drugs in 2023, Labcorp (NYSE: LH) provides laboratory testing services and drug development solutions to doctors, hospitals, pharmaceutical companies, and patients worldwide.

Why Are We Hesitant About LH?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 14.3 percentage points
3. Waning returns on capital imply its previous profit engines are losing steam

Labcorp is trading at $283.71 per share, or 16.8x forward P/E. Read our free research report to see why you should think twice about including LH in your portfolio.

Stocks We Like More

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