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".

Not all profitable companies are created equal, and that’s why we built StockStory - to help you find the ones that truly shine bright. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.

Old Dominion Freight Line (ODFL)

Trailing 12-Month GAAP Operating Margin: 24.8%

With its name deriving from the Commonwealth of Virginia’s nickname, Old Dominion (NASDAQ: ODFL) delivers less-than-truckload (LTL) and full-container load freight.

Why Is ODFL Not Exciting?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 3.2% annually over the last two years
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. Waning returns on capital imply its previous profit engines are losing steam

At $180.73 per share, Old Dominion Freight Line trades at 36.6x forward P/E. To fully understand why you should be careful with ODFL, check out our full research report (it’s free).

Matson (MATX)

Trailing 12-Month GAAP Operating Margin: 14.3%

Founded by a Swedish orphan, Matson (NYSE: MATX) is a provider of ocean transportation and logistics services.

Why Do We Think Twice About MATX?

1. 4% annual revenue growth over the last two years was slower than its industrials peers
2. Free cash flow margin dropped by 12.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Eroding returns on capital suggest its historical profit centers are aging

Matson’s stock price of $155.07 implies a valuation ratio of 11.9x forward P/E. Check out our free in-depth research report to learn more about why MATX doesn’t pass our bar.

Landstar (LSTR)

Trailing 12-Month GAAP Operating Margin: 3.2%

Covering billions of miles throughout North America, Landstar (NASDAQ: LSTR) is a transportation company specializing in freight and last-mile delivery services.

Why Do We Pass on LSTR?

1. Sales tumbled by 5.4% annually over the last two years, showing market trends are working against its favor during this cycle
2. Earnings per share have contracted by 6.1% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Landstar is trading at $148.50 per share, or 28.1x forward P/E. If you’re considering LSTR for your portfolio, see our FREE research report to learn more.

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