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".

Profits are valuable, but they’re not everything. At StockStory, we help you identify the companies that have real staying power. That said, here are three profitable companies to avoid and some better opportunities instead.

Cushman & Wakefield (CWK)

Trailing 12-Month GAAP Operating Margin: 3.8%

With expertise in the commercial real estate sector, Cushman & Wakefield (NYSE: CWK) is a global Chicago-based real estate firm offering a comprehensive range of services to clients.

Why Do We Avoid CWK?

1. Annual sales declines of 2.4% for the past two years show its products and services struggled to connect with the market
2. Earnings per share fell by 8.6% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. ROIC of 6.4% reflects management’s challenges in identifying attractive investment opportunities

Cushman & Wakefield is trading at $10.65 per share, or 9.5x forward P/E. Read our free research report to see why you should think twice about including CWK in your portfolio.

Advanced Energy (AEIS)

Trailing 12-Month GAAP Operating Margin: 4.3%

Pioneering technologies for radio frequency power delivery, Advanced Energy (NASDAQ: AEIS) provides power supplies, thermal management systems, and measurement and control instruments for various manufacturing processes.

Why Do We Steer Clear of AEIS?

1. Sales tumbled by 8.8% annually over the last two years, showing market trends are working against its favor during this cycle
2. Free cash flow margin dropped by 6.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Advanced Energy’s stock price of $127.72 implies a valuation ratio of 25.5x forward P/E. Dive into our free research report to see why there are better opportunities than AEIS.

Insteel (IIIN)

Trailing 12-Month GAAP Operating Margin: 4.9%

Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE: IIIN) provides steel wire reinforcing products for concrete.

Why Are We Out on IIIN?

1. Sales tumbled by 13.4% annually over the last two years, showing market trends are working against its favor during this cycle
2. Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $35.56 per share, Insteel trades at 18.1x forward P/E. If you’re considering IIIN for your portfolio, see our FREE research report to learn more.

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