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 to avoid and some better opportunities instead.
WeightWatchers (WW)
Trailing 12-Month Free Cash Flow Margin: 2.6%
Known by many for its old cable television commercials, WeightWatchers (NASDAQ:WW) is a wellness company offering a range of products and services promoting weight loss and healthy habits.
Why Do We Steer Clear of WW?
- Performance surrounding its members has lagged its peers
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.8% for the last two years
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
WeightWatchers’s stock price of $31.00 implies a valuation ratio of 18.6x forward P/E. Dive into our free research report to see why there are better opportunities than WW.
Griffon (GFF)
Trailing 12-Month Free Cash Flow Margin: 12.7%
Initially in the defense industry, Griffon (NYSE:GFF) is a now diversified company specializing in home improvement, professional equipment, and building products.
Why Are We Wary of GFF?
- Sales tumbled by 3.1% annually over the last two years, showing market trends are working against its favor during this cycle
- Estimated sales for the next 12 months are flat and imply a softer demand environment
At $75.02 per share, Griffon trades at 12.3x forward P/E. Read our free research report to see why you should think twice about including GFF in your portfolio.
Waters Corporation (WAT)
Trailing 12-Month Free Cash Flow Margin: 19.4%
Founded in 1958 and pioneering innovations in laboratory analysis for over six decades, Waters (NYSE:WAT) develops and manufactures analytical instruments, software, and consumables for liquid chromatography, mass spectrometry, and thermal analysis used in scientific research and quality testing.
Why Are We Cautious About WAT?
- 1.8% annual revenue growth over the last two years was slower than its healthcare peers
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Diminishing returns on capital suggest its earlier profit pools are drying up
Waters Corporation is trading at $382 per share, or 27.4x forward P/E. If you’re considering WAT for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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