Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages. Just because a business is in the green today doesn’t mean it will thrive tomorrow.

A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. Keeping that in mind, here are three profitable companies that don’t make the cut and some better opportunities instead.

Pangaea (PANL)

Trailing 12-Month GAAP Operating Margin: 6.4%

Established in 1996, Pangaea Logistics (NASDAQ: PANL) specializes in global logistics and transportation services, focusing on the shipment of dry bulk cargoes.

Why Is PANL Not Exciting?

1. Gross margin of 19.1% reflects its high production costs
2. Earnings per share have contracted by 33.6% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 0.6% for the last five years

Pangaea’s stock price of $8.53 implies a valuation ratio of 7.8x forward P/E. Check out our free in-depth research report to learn more about why PANL doesn’t pass our bar.

OPENLANE (OPLN)

Trailing 12-Month GAAP Operating Margin: 12.3%

Facilitating the sale of approximately 1.3 million used vehicles in 2023, OPENLANE (NYSE: OPLN) operates digital marketplaces that connect sellers and buyers of used vehicles across North America and Europe, facilitating wholesale transactions.

Why Are We Cautious About OPLN?

1. Annual sales declines of 4% for the past five years show its products and services struggled to connect with the market during this cycle
2. Low returns on capital reflect management’s struggle to allocate funds effectively
3. 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

At $29.43 per share, OPENLANE trades at 21.6x forward P/E. Dive into our free research report to see why there are better opportunities than OPLN.

Morgan Stanley (MS)

Trailing 12-Month GAAP Operating Margin: 37.4%

Founded in 1924 during the post-WWI economic boom by former JP Morgan partners, Morgan Stanley (NYSE: MS) is a global financial services firm that provides investment banking, wealth management, and investment management services to corporations, governments, institutions, and individuals.

Why Are We Hesitant About MS?

1. Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 9.3% annually
2. Sizable asset base leads to capital growth challenges as its 3% annual tangible book value per share increases over the last five years fell short of other financials companies

Morgan Stanley is trading at $179.69 per share, or 15.4x forward P/E. If you’re considering MS for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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