Even if a company is profitable, it doesn’t always mean it’s a great investment. Some struggle to maintain growth, face looming threats, or fail to reinvest wisely, limiting their future potential.

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 to avoid and some better opportunities instead.

Hyatt Hotels (H)

Trailing 12-Month GAAP Operating Margin: 4.9%

Founded in 1957, Hyatt Hotels (NYSE: H) is a global hospitality company with a portfolio of 20 premier brands and over 950 properties across 65 countries.

Why Do We Steer Clear of H?

1. Softer revenue per room over the past two years suggests it might have to invest in new amenities such as restaurants and bars to attract customers
2. Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
3. Low free cash flow margin of 4.5% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

At $149.86 per share, Hyatt Hotels trades at 46.7x forward P/E. Dive into our free research report to see why there are better opportunities than H.

Arrow Electronics (ARW)

Trailing 12-Month GAAP Operating Margin: 2.7%

Founded as a single retail store, Arrow Electronics (NYSE: ARW) provides electronic components and enterprise computing solutions to businesses globally.

Why Are We Out on ARW?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 3.5% annually over the last two years
2. Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 19.7% annually, worse than its revenue
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Arrow Electronics is trading at $141.70 per share, or 10.7x forward P/E. To fully understand why you should be careful with ARW, check out our full research report (it’s free).

CNO Financial Group (CNO)

Trailing 12-Month GAAP Operating Margin: 14.3%

Rebranded from Conseco in 2010 to signal a fresh start after navigating financial challenges, CNO Financial Group (NYSE: CNO) develops and markets health insurance, annuities, and life insurance products primarily targeting middle-income pre-retirees and retirees.

Why Do We Avoid CNO?

1. Net premiums earned remained stagnant over the last five years, indicating expansion challenges this cycle
2. Expenses have increased as a percentage of revenue over the last two years as its pre-tax profit margin fell by 2.3 percentage points
3. Products and services are facing significant credit quality challenges during this cycle as book value per share has declined by 7.2% annually over the last five years

CNO Financial Group’s stock price of $40.31 implies a valuation ratio of 1.3x forward P/B. Check out our free in-depth research report to learn more about why CNO doesn’t pass our bar.

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