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.
C.H. Robinson Worldwide (CHRW)
Trailing 12-Month GAAP Operating Margin: 4.8%
Engaging in contracts with tens of thousands of transportation companies, C.H. Robinson (NASDAQ: CHRW) offers freight transportation and logistics services.
Why Are We Wary of CHRW?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.4% annually over the last two years
- High input costs result in an inferior gross margin of 7.4% that must be offset through higher volumes
- Waning returns on capital imply its previous profit engines are losing steam
C.H. Robinson Worldwide’s stock price of $158.96 implies a valuation ratio of 28.1x forward P/E. Read our free research report to see why you should think twice about including CHRW in your portfolio.
Crane NXT (CXT)
Trailing 12-Month GAAP Operating Margin: 15.1%
Born from a corporate transformation completed in 2023, Crane NXT (NYSE: CXT) provides specialized technology solutions for payment processing, banknote security, and authentication systems for financial institutions and businesses.
Why Should You Dump CXT?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 6.3% annually while its revenue grew
- Free cash flow margin dropped by 11.5 percentage points over the last four years, implying the company became more capital intensive as competition picked up
At $56.30 per share, Crane NXT trades at 12.5x forward P/E. Check out our free in-depth research report to learn more about why CXT doesn’t pass our bar.
BNY (BK)
Trailing 12-Month GAAP Operating Margin: 35.7%
Tracing its roots back to 1784 when it was founded by Alexander Hamilton, BNY (NYSE: BK) is a global financial institution that provides asset servicing, wealth management, and investment services to institutions, corporations, and high-net-worth individuals.
Why Does BK Worry Us?
- Sizable revenue base leads to growth challenges as its 3.3% annual revenue increases over the last five years fell short of other financials companies
- Scale is a double-edged sword because it limits the firm’s capital growth potential compared to its smaller competitors, as reflected in its below-average annual tangible book value per share increases of 3.2% for the last five years
- ROE of 8.9% reflects management’s challenges in identifying attractive investment opportunities
BNY is trading at $111.94 per share, or 14.1x forward P/E. If you’re considering BK for your portfolio, see our FREE research report to learn more.
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