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.
Luckily for you, we built StockStory to help you separate the good from the bad. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Qorvo (QRVO)
Trailing 12-Month Free Cash Flow Margin: 14.6%
Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.
Why Do We Think QRVO Will Underperform?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Estimated sales growth of 3% for the next 12 months implies demand will slow from its two-year trend
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 20.3 percentage points
Qorvo is trading at $86.14 per share, or 13.3x forward P/E. Read our free research report to see why you should think twice about including QRVO in your portfolio.
European Wax Center (EWCZ)
Trailing 12-Month Free Cash Flow Margin: 28.1%
Founded by two siblings, European Wax Center (NASDAQ:EWCZ) is a beauty and waxing salon chain specializing in professional wax services and skincare products.
Why Should You Sell EWCZ?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores
- Earnings per share lagged its peers over the last four years as they only grew by 4% annually
- Rising returns on capital show management is making relatively better investments
European Wax Center’s stock price of $3.65 implies a valuation ratio of 5.8x forward P/E. Check out our free in-depth research report to learn more about why EWCZ doesn’t pass our bar.
Xerox (XRX)
Trailing 12-Month Free Cash Flow Margin: 4.9%
Pioneering the modern office copier and inventing technologies like Ethernet and the laser printer, Xerox (NASDAQ:XRX) provides document management systems, printing technology, and workplace solutions to businesses of all sizes across the globe.
Why Is XRX Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.6% annually over the last five years
- Sales were less profitable over the last five years as its earnings per share fell by 15.6% annually, worse than its revenue declines
- High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $2.48 per share, Xerox trades at 3x forward P/E. If you’re considering XRX for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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