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”.

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 avoid and some better opportunities instead.

Qorvo (QRVO)

Trailing 12-Month GAAP Operating Margin: 11.2%

Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.

Why Should You Dump QRVO?

1. Annual sales declines of 1.7% for the past five years show its products and services struggled to connect with the market during this cycle
2. Sales are projected to tank by 5.7% over the next 12 months as its demand continues evaporating
3. Operating profits fell over the last five years as its sales dropped and it struggled to adjust its fixed costs

At $93.38 per share, Qorvo trades at 13.6x forward P/E. Dive into our free research report to see why there are better opportunities than QRVO.

Penske Automotive Group (PAG)

Trailing 12-Month GAAP Operating Margin: 3.9%

With a diverse global network spanning the US, UK, Canada, Germany, Italy, Japan, and Australia, Penske Automotive Group (NYSE: PAG) operates automotive and commercial truck dealerships across the globe, selling new and used vehicles while providing service, parts, and financing options.

Why Is PAG Risky?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Widely-available products (and therefore stiff competition) result in an inferior gross margin of 13.5% that must be offset through higher volumes
3. Earnings per share fell by 10.6% annually over the last three years while its revenue grew, showing its incremental sales were much less profitable

Penske Automotive Group’s stock price of $178.82 implies a valuation ratio of 13.2x forward P/E. Read our free research report to see why you should think twice about including PAG in your portfolio.

Range Resources (RRC)

Trailing 12-Month GAAP Operating Margin: 40.4%

Focused almost entirely on the Marcellus Shale beneath Pennsylvania's forests and farmland, Range Resources (NYSE: RRC) drills for and produces natural gas, natural gas liquids, and oil from shale formations.

Why Does RRC Fall Short?

1. Annual revenue growth of 9.6% over the last five years was below our standards for the energy upstream and integrated energy sector
2. Expenses have increased as a percentage of revenue over the last five years as its EBITDA margin fell by 1 percentage points

Range Resources is trading at $36.74 per share, or 8.8x forward P/E. If you’re considering RRC for your portfolio, see our FREE research report to learn more.

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