2 ASX shares I wouldn't buy

I wouldn't buy Qantas Airways Limited (ASX:QAN) and G8 Education Ltd (ASX:GEM) shares today.

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I wouldn't buy Qantas Airways Limited (ASX: QAN) shares and G8 Education Ltd (ASX: GEM) shares today because I do not believe they have enduring competitive advantages.

QAN and GEM share prices

QAN and GEM share price
Source: Google Finance

As can be seen above each company's share price has performed exceptionally well over the past five years.

G8 Education

G8 Education is a childcare centre owner and operator. While G8's strategy of buying privately-owned centres using public shareholders' money has been effective, it is not unique. Many other companies, like Greencross Limited (ASX: GXL), have taken advantage of a similar 'roll up' strategy. However, many have also been unsuccessful, finding themselves with crippling debt and poor cash flow.

As an investor looking to outperform the market over many years, I would rather focus my attention on companies with enduring advantages.

Qantas

Qantas is another business caught between a rock (huge fixed costs, commodity prices) and a hard place (competition). Similar to G8 Education's dependence on government childcare subsidiaries — though, even less reliable — Qantas depends on external factors to keep its head above water. Fuel prices, high fixed costs, interest rates and competition make it tough for all airlines.

The management team at Qantas appear to have done a good job of running the business. Unfortunately, the company's profit margins are fragile given the external factors, making it hard to justify an investment when there are many other companies available on the ASX.

Foolish Takeaway

I can see the appeal of owning these two shares in a portfolio. However, I would say the odds of them beating the market over the next five years are not worth the risk. That's why I'm looking for other investment ideas.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask. The Motley Fool Australia owns shares of Greencross Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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