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Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages. Just because a business is in the green today doesn’t mean it will thrive tomorrow.

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 steer clear of and a few better alternatives.

AeroVironment (AVAV)

Trailing 12-Month GAAP Operating Margin: 4.4%

Focused on the future of autonomous military combat, AeroVironment (NASDAQ:AVAV) specializes in advanced unmanned aircraft systems and electric vehicle charging solutions.

Why Do We Think Twice About AVAV?

1. Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 7.5 percentage points

2. Free cash flow margin dropped by 24.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up

3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

AeroVironment is trading at $149.78 per share, or 33.2x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than AVAV.

Fortive (FTV)

Trailing 12-Month GAAP Operating Margin: 19.4%

Taking its name from the Latin root of "strong", Fortive (NYSE:FTV) manufactures products and develops industrial software for numerous industries.

Why Does FTV Give Us Pause?

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. Demand is forecasted to shrink as its estimated sales for the next 12 months are flat

3. Annual earnings per share growth of 1.4% underperformed its revenue over the last five years, partly because it diluted shareholders

At $68.92 per share, Fortive trades at 16.6x forward price-to-earnings. Read our free research report to see why you should think twice about including FTV in your portfolio, it’s free.

OPENLANE (KAR)

Trailing 12-Month GAAP Operating Margin: 15.5%

Facilitating the sale of approximately 1.3 million used vehicles in 2023, OPENLANE (NYSE:KAR) operates digital marketplaces that connect sellers and buyers of used vehicles across North America and Europe, facilitating wholesale transactions.

Why Does KAR Fall Short?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 8.5% annually over the last five years

2. Sales were less profitable over the last five years as its earnings per share fell by 16.3% annually, worse than its revenue declines

3. High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens