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".

A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. That said, here are three profitable companies to avoid and some better opportunities instead.

MGP Ingredients (MGPI)

Trailing 12-Month GAAP Operating Margin: 3.6%

Headquartered in Atchison, Kansas, MGP Ingredients (NASDAQ: MGPI) is a leading supplier of high-quality ingredients to the food and beverage industry

Why Do We Steer Clear of MGPI?

1. Sales tumbled by 6% annually over the last three years, showing consumer trends are working against its favor
2. Sales are projected to tank by 15.8% over the next 12 months as its demand continues evaporating
3. Inability to adjust its cost structure while its revenue declined over the last year led to a 13.6 percentage point drop in the company’s operating margin

At $24.68 per share, MGP Ingredients trades at 9.9x forward P/E. If you’re considering MGPI for your portfolio, see our FREE research report to learn more.

LKQ (LKQ)

Trailing 12-Month GAAP Operating Margin: 8.4%

A global distributor of vehicle parts and accessories, LKQ (NASDAQ: LKQ) offers its customers a comprehensive selection of high-quality, affordably priced automobile products.

Why Do We Think LKQ Will Underperform?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Estimated sales growth of 1.2% for the next 12 months implies demand will slow from its two-year trend
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

LKQ’s stock price of $29.43 implies a valuation ratio of 9.2x forward P/E. Check out our free in-depth research report to learn more about why LKQ doesn’t pass our bar.

American Airlines (AAL)

Trailing 12-Month GAAP Operating Margin: 3.8%

One of the ‘Big Four’ airlines in the US, American Airlines (NASDAQ: AAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.

Why Should You Dump AAL?

1. Sluggish trends in its revenue passenger miles suggest customers aren’t adopting its solutions as quickly as the company hoped
2. Underwhelming 3.3% return on capital reflects management’s difficulties in finding profitable growth opportunities
3. 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

American Airlines is trading at $11.90 per share, or 11.7x forward P/E. To fully understand why you should be careful with AAL, check out our full research report (it’s free for active Edge members).

Stocks We Like More

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