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".

Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. Keeping that in mind, here are three profitable companies that don’t make the cut and some better opportunities instead.

Enpro (NPO)

Trailing 12-Month GAAP Operating Margin: 15.2%

Holding a Guinness World Record for creating the world's largest gasket, Enpro (NYSE: NPO) designs, manufactures, and sells products used for machinery in various industries.

Why Does NPO Worry Us?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
2. Earnings per share lagged its peers over the last two years as they only grew by 4.7% annually
3. Low returns on capital reflect management’s struggle to allocate funds effectively

Enpro is trading at $227.47 per share, or 26.7x forward P/E. Check out our free in-depth research report to learn more about why NPO doesn’t pass our bar.

Woodward (WWD)

Trailing 12-Month GAAP Operating Margin: 12.4%

Initially designing controls for water wheels in the early 1900s, Woodward (NASDAQ: WWD) designs, services, and manufactures energy control products and optimization solutions.

Why Are We Wary of WWD?

1. Annual revenue growth of 4.9% over the last five years was below our standards for the industrials sector
2. Earnings growth underperformed the sector average over the last five years as its EPS grew by just 7.1% annually
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 11.2 percentage points

At $262.32 per share, Woodward trades at 35.3x forward P/E. Dive into our free research report to see why there are better opportunities than WWD.

Hub Group (HUBG)

Trailing 12-Month GAAP Operating Margin: 3.8%

Started with $10,000, Hub Group (NASDAQ: HUBG) is a provider of intermodal, truck brokerage, and logistics services, facilitating transportation solutions for businesses worldwide.

Why Do We Steer Clear of HUBG?

1. Underwhelming unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
2. Sales were less profitable over the last two years as its earnings per share fell by 28% annually, worse than its revenue declines
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Hub Group’s stock price of $35.68 implies a valuation ratio of 18.1x forward P/E. Read our free research report to see why you should think twice about including HUBG in your portfolio.

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