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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. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.

Constellation Brands (STZ)

Trailing 12-Month GAAP Operating Margin: 3.5%

With a presence in more than 100 countries, Constellation Brands (NYSE:STZ) is a globally renowned producer and marketer of beer, wine, and spirits.

Why Does STZ Worry Us?

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 decline of 6.6% for the next 12 months implies a challenging demand environment

3. Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 28.3 percentage points

Constellation Brands’s stock price of $187.26 implies a valuation ratio of 13.9x forward P/E. To fully understand why you should be careful with STZ, check out our full research report (it’s free).

Matthews (MATW)

Trailing 12-Month GAAP Operating Margin: 4.3%

Originally a death care company, Matthews International (NASDAQ:MATW) is a diversified company offering ceremonial services, brand solutions and industrial technologies.

Why Are We Out on MATW?

1. Products and services aren't resonating with the market as its revenue declined by 2.9% annually over the last two years

2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 12% annually

3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

At $20.41 per share, Matthews trades at 5.5x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than MATW.

GEO Group (GEO)

Trailing 12-Month GAAP Operating Margin: 12%

With a global footprint spanning three continents and approximately 81,000 beds across 100 facilities, GEO Group (NYSE:GEO) operates secure facilities, processing centers, and reentry services for government agencies in the United States, Australia, and South Africa.

Why Do We Pass on GEO?

1. Flat sales over the last five years suggest it must find different ways to grow during this cycle

2. Sales over the last five years were less profitable as its earnings per share fell by 31.5% annually while its revenue was flat

3. Free cash flow margin dropped by 8.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up