Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages.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.

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.

Champion Homes (SKY)

Trailing 12-Month GAAP Operating Margin: 9.5%

Founded in 1951, Champion Homes (NYSE: SKY) is a manufacturer of modular homes and buildings in North America.

Why Does SKY Worry Us?

1. Weak unit sales over the past two years imply it may need to invest in improvements to get back on track
2. Earnings per share have contracted by 28.9% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Waning returns on capital imply its previous profit engines are losing steam

Champion Homes’s stock price of $64.30 implies a valuation ratio of 16.3x forward P/E. Read our free research report to see why you should think twice about including SKY in your portfolio.

Artivion (AORT)

Trailing 12-Month GAAP Operating Margin: 4%

Formerly known as CryoLife until its 2022 rebranding, Artivion (NYSE: AORT) develops and manufactures medical devices and preserves human tissues used in cardiac and vascular surgical procedures for patients with aortic disease.

Why Do We Avoid AORT?

1. 7.2% annual revenue growth over the last five years was slower than its healthcare peers
2. Modest revenue base of $390.1 million gives it less fixed cost leverage and fewer distribution channels than larger companies
3. Underwhelming 1.9% return on capital reflects management’s difficulties in finding profitable growth opportunities

Artivion is trading at $30.49 per share, or 45.4x forward P/E. Dive into our free research report to see why there are better opportunities than AORT.

Amneal (AMRX)

Trailing 12-Month GAAP Operating Margin: 12.7%

Founded in 2002 and growing into one of America's largest generic drug producers, Amneal Pharmaceuticals (NASDAQ: AMRX) develops, manufactures, and distributes generic medicines, specialty branded drugs, biosimilars, and injectable products for the U.S. healthcare market.

Why Do We Think Twice About AMRX?

1. 12.1 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
2. Below-average returns on capital indicate management struggled to find compelling investment opportunities

At $7.97 per share, Amneal trades at 11.4x forward P/E. Check out our free in-depth research report to learn more about why AMRX doesn’t pass our bar.

Stocks We Like More

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