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. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Marqeta (MQ)
Trailing 12-Month Free Cash Flow Margin: 12.6%
Founded by CEO Jason Gardner in 2009, Marqeta (NASDAQ: MQ) is an innovative card issuer that provides companies with the ability to issue and process virtual, physical, and tokenized credit and debit cards.
Why Does MQ Give Us Pause?
- Products and services have few die-hard fans as sales have declined by 2.8% annually over the last three years
- Gross margin of 69.4% is below its competitors, leaving less money to invest in areas like marketing and R&D
Marqeta’s stock price of $5.70 implies a valuation ratio of 4.8x forward price-to-sales. Read our free research report to see why you should think twice about including MQ in your portfolio.
Power Integrations (POWI)
Trailing 12-Month Free Cash Flow Margin: 16.9%
A leading supplier of parts for electronics such as home appliances, Power Integrations (NASDAQ: POWI) is a semiconductor designer and developer specializing in products used for high-voltage power conversion.
Why Should You Dump POWI?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Efficiency has decreased over the last five years as its operating margin fell by 11.7 percentage points
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
Power Integrations is trading at $57.58 per share, or 33.5x forward P/E. If you’re considering POWI for your portfolio, see our FREE research report to learn more.
Shyft (SHYF)
Trailing 12-Month Free Cash Flow Margin: 2.1%
Notably receiving an order from FedEx for electric vehicles, Shyft (NASDAQ: SHYF) offers specialty vehicles and truck bodies for various industries.
Why Do We Avoid SHYF?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 13.7% annually over the last two years
- Free cash flow margin shrank by 6.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $12.54 per share, Shyft trades at 11.7x forward P/E. Dive into our free research report to see why there are better opportunities than SHYF.
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