Generating cash is essential for any business, but not all cash-rich companies are great investments. Some produce plenty of cash but fail to allocate it effectively, leading to missed opportunities.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here are three cash-producing companies to steer clear of and a few better alternatives.
Reynolds (REYN)
Trailing 12-Month Free Cash Flow Margin: 6.9%
Best known for its aluminum foil, Reynolds (NASDAQ:REYN) is a household products company whose products focus on food storage, cooking, and waste.
Why Do We Avoid REYN?
- Declining unit sales over the past two years suggest it might have to lower prices to stimulate growth
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 4.5 percentage points
Reynolds’s stock price of $24.14 implies a valuation ratio of 13.9x forward P/E. Read our free research report to see why you should think twice about including REYN in your portfolio.
Fresh Del Monte Produce (FDP)
Trailing 12-Month Free Cash Flow Margin: 4.1%
Translating to "of the mountain" in Spanish, Fresh Del Monte (NYSE:FDP) is a leader in providing high-quality, sustainably grown fresh fruits and vegetables.
Why Do We Think FDP Will Underperform?
- Sales stagnated over the last three years and signal the need for new growth strategies
- Forecasted revenue decline of 2.9% for the upcoming 12 months implies demand will fall off a cliff
- Gross margin of 8.2% is below its competitors, leaving less money to invest in areas like marketing and production facilities
Fresh Del Monte Produce is trading at $37 per share, or 13.1x forward P/E. Check out our free in-depth research report to learn more about why FDP doesn’t pass our bar.
Deckers (DECK)
Trailing 12-Month Free Cash Flow Margin: 18.7%
Established in 1973, Deckers (NYSE:DECK) is a footwear and apparel conglomerate with a portfolio of lifestyle and performance brands.
Why Do We Pass on DECK?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 18.5% for the last two years
At $98.25 per share, Deckers trades at 15.8x forward P/E. Dive into our free research report to see why there are better opportunities than DECK.
Stocks We Like More
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