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. Keeping that in mind, here are three cash-producing companies to avoid and some better opportunities instead.
Campbell's (CPB)
Trailing 12-Month Free Cash Flow Margin: 6.9%
With its iconic canned soup as its cornerstone product, Campbell's (NASDAQ: CPB) is a packaged food company with an illustrious portfolio of brands.
Why Are We Out on CPB?
- Falling unit sales over the past two years suggest it might have to lower prices to stimulate growth
- Estimated sales decline of 3.1% for the next 12 months implies a challenging demand environment
- Annual earnings per share growth of 1.6% underperformed its revenue over the last three years, showing its incremental sales were less profitable
Campbell’s stock price of $30.28 implies a valuation ratio of 12.3x forward P/E. If you’re considering CPB for your portfolio, see our FREE research report to learn more.
Figs (FIGS)
Trailing 12-Month Free Cash Flow Margin: 7%
Rising to fame via TikTok and founded in 2013 by Heather Hasson and Trina Spear, Figs (NYSE: FIGS) is a healthcare apparel company known for its stylish approach to medical attire and uniforms.
Why Should You Dump FIGS?
- Number of active customers has disappointed over the past two years, indicating weak demand for its offerings
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 2.7 percentage points
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Figs is trading at $7.64 per share, or 140.1x forward P/E. Check out our free in-depth research report to learn more about why FIGS doesn’t pass our bar.
Interpublic Group (IPG)
Trailing 12-Month Free Cash Flow Margin: 9.5%
With a history dating back to 1902 and roots in the McCann-Erickson agency, Interpublic Group (NYSE: IPG) is a marketing and communications holding company that owns agencies specializing in advertising, media buying, public relations, and digital marketing services.
Why Do We Steer Clear of IPG?
- 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
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Free cash flow margin shrank by 17.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $25.71 per share, Interpublic Group trades at 8.7x forward P/E. To fully understand why you should be careful with IPG, check out our full research report (it’s free for active Edge members).
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