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

Analog Devices (ADI)

Trailing 12-Month GAAP Operating Margin: 22.7%

Founded by two MIT graduates, Ray Stata and Matthew Lorber in 1965, Analog Devices (NASDAQ: ADI) is one of the largest providers of high performance analog integrated circuits used mainly in industrial end markets, along with communications, autos, and consumer devices.

Why Are We Cautious About ADI?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 12.7% annually over the last two years
2. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 7.3 percentage points
3. Underwhelming 6.4% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its shrinking returns suggest its past profit sources are losing steam

At $224.28 per share, Analog Devices trades at 28.6x forward P/E. If you’re considering ADI for your portfolio, see our FREE research report to learn more.

Liberty Broadband (LBRDK)

Trailing 12-Month GAAP Operating Margin: 10.3%

Operating across the United States, Liberty Broadband (NASDAQ: LBRDK) is a provider of high-speed internet, cable television, and telecommunications services across various markets.

Why Does LBRDK Give Us Pause?

1. Muted 2.7% annual revenue growth over the last two years shows its demand lagged behind its business services peers
2. 39.4 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution

Liberty Broadband’s stock price of $61.32 implies a valuation ratio of 35x forward EV-to-EBITDA. To fully understand why you should be careful with LBRDK, check out our full research report (it’s free).

JLL (JLL)

Trailing 12-Month GAAP Operating Margin: 3.6%

Founded in 1999 through the merger of Jones Lang Wootton and LaSalle Partners, JLL (NYSE: JLL) is a company specializing in real estate advisory and investment management services.

Why Should You Sell JLL?

1. Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 5.7% for the last five years
2. Low free cash flow margin of 2.1% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. ROIC of 7.6% reflects management’s challenges in identifying attractive investment opportunities, and its falling returns suggest its earlier profit pools are drying up

JLL is trading at $265 per share, or 16.2x forward P/E. Check out our free in-depth research report to learn more about why JLL doesn’t pass our bar.

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