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.

Saia (SAIA)

Trailing 12-Month GAAP Operating Margin: 12.1%

Pivoting its business model after realizing there was more success in delivering produce than selling it, Saia (NASDAQ: SAIA) is a provider of freight transportation solutions.

Why Are We Hesitant About SAIA?

1. Disappointing tons shipped over the past two years suggest it might have to lower prices to accelerate growth
2. 7.6 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. Waning returns on capital imply its previous profit engines are losing steam

At $353.03 per share, Saia trades at 33.3x forward P/E. Read our free research report to see why you should think twice about including SAIA in your portfolio.

Invesco (IVZ)

Trailing 12-Month GAAP Operating Margin: 23.6%

With roots dating back to 1935 when it pioneered the first mutual fund with an objective of capital growth, Invesco (NYSE: IVZ) is a global asset management firm that offers investment solutions across equities, fixed income, alternatives, and multi-asset strategies.

Why Do We Avoid IVZ?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
2. Flat earnings per share over the last five years lagged its peers
3. Below-average return on equity indicates management struggled to find compelling investment opportunities

Invesco’s stock price of $28.37 implies a valuation ratio of 11.2x forward P/E. To fully understand why you should be careful with IVZ, check out our full research report (it’s free for active Edge members).

Howard Hughes Holdings (HHH)

Trailing 12-Month GAAP Operating Margin: 30.9%

Named after the eccentric business magnate and aviator whose legacy lives on in real estate development, Howard Hughes Holdings (NYSE: HHH) develops, owns, and manages master-planned communities and commercial properties across the United States.

Why Should You Sell HHH?

1. Annual revenue growth of 17.6% over the last five years was below our standards for the consumer discretionary sector
2. Low free cash flow margin of 7.4% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Returns on capital are growing as management invests in more worthwhile ventures

Howard Hughes Holdings is trading at $80.60 per share, or 2.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than HHH.

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