A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here are three cash-producing companies to avoid and some better opportunities instead.
Kohl's (KSS)
Trailing 12-Month Free Cash Flow Margin: 3%
Founded as a corner grocery store in Milwaukee, Wisconsin, Kohl’s (NYSE: KSS) is a department store chain that sells clothing, cosmetics, electronics, and home goods.
Why Do We Steer Clear of KSS?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Projected sales decline of 4.1% over the next 12 months indicates demand will continue deteriorating
- 5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Kohl’s stock price of $16.45 implies a valuation ratio of 29.9x forward P/E. Check out our free in-depth research report to learn more about why KSS doesn’t pass our bar.
European Wax Center (EWCZ)
Trailing 12-Month Free Cash Flow Margin: 27.1%
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 Are We Cautious About EWCZ?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- ROIC of 10.5% reflects management’s challenges in identifying attractive investment opportunities
At $3.74 per share, European Wax Center trades at 7x forward P/E. Read our free research report to see why you should think twice about including EWCZ in your portfolio.
John Bean (JBTM)
Trailing 12-Month Free Cash Flow Margin: 10.8%
Tracing back to its invention of the mechanical milk bottle filler in 1884, John Bean (NYSE: JBT) designs, manufactures, and sells equipment used for food processing and aviation.
Why Does JBTM Give Us Pause?
- 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
- Efficiency has decreased over the last five years as its operating margin fell by 6.1 percentage points
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
John Bean is trading at $129.92 per share, or 19.3x forward P/E. Dive into our free research report to see why there are better opportunities than JBTM.
Stocks We Like More
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