If you are looking to invest in very good businesses then one of the criteria that will be near the top of your list is likely to be high profit margins. A consistently high profit margin is often a hallmark of an outstanding business, but in some circumstances it may be a sign of trouble ahead.
There’s a lot to like about a business that has high profit margins. Given the choice, most people would prefer a business to be more profitable. Yet, high profit margins often indicate that the company concerned has something a little bit special about it.
They can be a sign that a company can do things with its products and services that few competitors can copy – known as an economic moat. These types of companies can turn out to be excellent long-term investments, provided they can keep their margins high while growing sales.