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 steer clear of and a few better alternatives.

MYR Group (MYRG)

Trailing 12-Month GAAP Operating Margin: 3.6%

Constructing electrical and phone lines in the American Midwest dating back to the 1890s, MYR Group (NASDAQ: MYRG) is a specialty contractor in the electrical construction industry.

Why Should You Dump MYRG?

1. Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 2.4% declines over the past two years
2. Incremental sales over the last two years were much less profitable as its earnings per share fell by 4.6% annually while its revenue grew
3. Eroding returns on capital suggest its historical profit centers are aging

MYR Group is trading at $198.50 per share, or 27.5x forward P/E. Check out our free in-depth research report to learn more about why MYRG doesn’t pass our bar.

Trex (TREX)

Trailing 12-Month GAAP Operating Margin: 22.5%

Addressing the demand for aesthetically-pleasing and unique outdoor living spaces, Trex Company (NYSE: TREX) makes wood-alternative decking, railing, and patio furniture.

Why Does TREX Fall Short?

1. Efficiency has decreased over the last five years as its operating margin fell by 3.3 percentage points
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.4 percentage points
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $51.29 per share, Trex trades at 21.4x forward P/E. Dive into our free research report to see why there are better opportunities than TREX.

Standex (SXI)

Trailing 12-Month GAAP Operating Margin: 15.4%

Holding over 500 patents globally, Standex (NYSE: SXI) is a manufacturer and distributor of industrial components for various sectors.

Why Are We Cautious About SXI?

1. Annual revenue growth of 3.3% over the last two years was below our standards for the industrials sector
2. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 7.8% annually
3. Free cash flow margin dropped by 4.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up

Standex’s stock price of $203.75 implies a valuation ratio of 23.8x forward P/E. If you’re considering SXI for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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