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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. That said, here are three cash-producing companies to avoid and some better opportunities instead.
Guess (GES)
Trailing 12-Month Free Cash Flow Margin: 2%
Flexing the iconic upside-down triangle logo with a question mark, Guess (NYSE:GES) is a global fashion brand known for its trendy clothing, accessories, and denim wear.
Why Are We Out on GES?
- 8.7% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Guess’s stock price of $16.77 implies a valuation ratio of 10.7x forward P/E. If you’re considering GES for your portfolio, see our FREE research report to learn more.
Teledyne (TDY)
Trailing 12-Month Free Cash Flow Margin: 17.3%
Playing a role in mapping the ocean floor as we know it today, Teledyne (NYSE:TDY) offers digital imaging and instrumentation products for various industries.
Why Are We Wary of TDY?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 4.5%
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $509.92 per share, Teledyne trades at 22.5x forward P/E. To fully understand why you should be careful with TDY, check out our full research report (it’s free for active Edge members).
Lindsay (LNN)
Trailing 12-Month Free Cash Flow Margin: 13.4%
A pioneer in the field of center pivot and lateral move irrigation, Lindsay (NYSE:LNN) provides a variety of proprietary water management and road infrastructure products and services.
Why Are We Cautious About LNN?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Earnings per share lagged its peers over the last two years as they only grew by 1.7% annually
Lindsay is trading at $121.99 per share, or 20.2x forward P/E. Dive into our free research report to see why there are better opportunities than LNN.
Stocks We Like More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
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