A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here are three cash-producing companies to avoid and some better opportunities instead.
Insteel (IIIN)
Trailing 12-Month Free Cash Flow Margin: 8.6%
Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE: IIIN) provides steel wire reinforcing products for concrete.
Why Are We Wary of IIIN?
- Annual sales declines of 7% for the past two years show its products and services struggled to connect with the market during this cycle
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 19.5% annually, worse than its revenue
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Insteel’s stock price of $35.70 implies a valuation ratio of 13.8x forward P/E. To fully understand why you should be careful with IIIN, check out our full research report (it’s free).
Tri Pointe Homes (TPH)
Trailing 12-Month Free Cash Flow Margin: 9.7%
Established in 2009 in California, Tri Pointe Homes (NYSE: TPH) is a United States homebuilder recognized for its innovative and sustainable approach to creating premium, life-enhancing homes.
Why Do We Pass on TPH?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 7.6% decline in its backlog
- Projected sales decline of 18.5% over the next 12 months indicates demand will continue deteriorating
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 8.1% annually, worse than its revenue
Tri Pointe Homes is trading at $33.05 per share, or 11.7x forward P/E. If you’re considering TPH for your portfolio, see our FREE research report to learn more.
Vulcan Materials (VMC)
Trailing 12-Month Free Cash Flow Margin: 14.5%
Founded in 1909, Vulcan Materials (NYSE: VMC) is a producer of construction aggregates, primarily crushed stone, sand, and gravel.
Why Do We Think Twice About VMC?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Performance surrounding its tons shipped has lagged its peers
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 25%
At $281.59 per share, Vulcan Materials trades at 31.7x forward P/E. Check out our free in-depth research report to learn more about why VMC doesn’t pass our bar.
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