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.

ANI Pharmaceuticals (ANIP)

Trailing 12-Month GAAP Operating Margin: 2%

With a diverse portfolio of 116 pharmaceutical products and a growing rare disease platform, ANI Pharmaceuticals (NASDAQ: ANIP) develops, manufactures, and markets branded and generic prescription pharmaceuticals, with a focus on rare disease treatments.

Why Are We Hesitant About ANIP?

1. Subscale operations are evident in its revenue base of $747.4 million, meaning it has fewer distribution channels than its larger rivals
2. Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 5.6 percentage points
3. Negative returns on capital show management lost money while trying to expand the business

ANI Pharmaceuticals is trading at $97 per share, or 12.8x forward P/E. Dive into our free research report to see why there are better opportunities than ANIP.

Exponent (EXPO)

Trailing 12-Month GAAP Operating Margin: 22.1%

With a team of over 800 consultants holding advanced degrees in 90+ technical disciplines, Exponent (NASDAQ: EXPO) is a science and engineering consulting firm that investigates complex problems and provides expert analysis for clients across various industries.

Why Are We Wary of EXPO?

1. Muted 3.3% annual revenue growth over the last two years shows its demand lagged behind its business services peers
2. Performance over the past two years shows its incremental sales were less profitable as its earnings per share were flat
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Exponent’s stock price of $67.88 implies a valuation ratio of 33.6x forward P/E. Check out our free in-depth research report to learn more about why EXPO doesn’t pass our bar.

Affiliated Managers Group (AMG)

Trailing 12-Month GAAP Operating Margin: 26.2%

Using a partnership approach that preserves entrepreneurial culture at its portfolio companies, Affiliated Managers Group (NYSE: AMG) is an investment firm that acquires stakes in boutique asset management companies while allowing them to maintain operational independence.

Why Is AMG Not Exciting?

1. Flat sales over the last five years suggest it must find different ways to grow during this cycle
2. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.4% annually

At $241.52 per share, Affiliated Managers Group trades at 9x forward P/E. If you’re considering AMG for your portfolio, see our FREE research report to learn more.

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