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.
ANI Pharmaceuticals (ANIP)
Trailing 12-Month GAAP Operating Margin: 2%
With a diverse portfolio of 116 pharmaceutical products and a growing rare disease platform, ANI Pharmaceuticals (NASDAQ: ANIP) develops, manufactures, and markets branded and generic prescription pharmaceuticals, with a focus on rare disease treatments.
Why Are We Hesitant About ANIP?
- Subscale operations are evident in its revenue base of $747.4 million, meaning it has fewer distribution channels than its larger rivals
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 5.6 percentage points
- Negative returns on capital show management lost money while trying to expand the business
ANI Pharmaceuticals is trading at $97 per share, or 12.8x forward P/E. Dive into our free research report to see why there are better opportunities than ANIP.
Exponent (EXPO)
Trailing 12-Month GAAP Operating Margin: 22.1%
With a team of over 800 consultants holding advanced degrees in 90+ technical disciplines, Exponent (NASDAQ: EXPO) is a science and engineering consulting firm that investigates complex problems and provides expert analysis for clients across various industries.
Why Are We Wary of EXPO?
- Muted 3.3% annual revenue growth over the last two years shows its demand lagged behind its business services peers
- Performance over the past two years shows its incremental sales were less profitable as its earnings per share were flat
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Exponent’s stock price of $67.88 implies a valuation ratio of 33.6x forward P/E. Check out our free in-depth research report to learn more about why EXPO doesn’t pass our bar.
Affiliated Managers Group (AMG)
Trailing 12-Month GAAP Operating Margin: 26.2%
Using a partnership approach that preserves entrepreneurial culture at its portfolio companies, Affiliated Managers Group (NYSE: AMG) is an investment firm that acquires stakes in boutique asset management companies while allowing them to maintain operational independence.
Why Is AMG Not Exciting?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.4% annually
At $241.52 per share, Affiliated Managers Group trades at 9x forward P/E. If you’re considering AMG for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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