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.
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 that don’t make the cut and some better opportunities instead.
The Real Brokerage (REAX)
Trailing 12-Month Free Cash Flow Margin: 3%
Founded in Toronto, Canada in 2014, The Real Brokerage (NASDAQ: REAX) is a technology-driven real estate brokerage firm combining a tech-centric model with an agent-centric philosophy.
Why Do We Think REAX Will Underperform?
- Historical operating margin losses point to an inefficient cost structure
- Earnings per share fell by 9% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 3.3% for the last two years
The Real Brokerage is trading at $4.47 per share, or 16.9x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including REAX in your portfolio.
Standex (SXI)
Trailing 12-Month Free Cash Flow Margin: 5.1%
Holding over 500 patents globally, Standex (NYSE: SXI) is a manufacturer and distributor of industrial components for various sectors.
Why Are We Cautious About SXI?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 5.9% annually
- Free cash flow margin dropped by 3.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $157.11 per share, Standex trades at 17.8x forward P/E. Check out our free in-depth research report to learn more about why SXI doesn’t pass our bar.
STERIS (STE)
Trailing 12-Month Free Cash Flow Margin: 14.3%
With a mission critical role in preventing healthcare-associated infections, STERIS (NYSE: STE) provides infection prevention products, sterilization services, and medical equipment that help healthcare facilities and life science companies maintain sterile environments.
Why Are We Hesitant About STE?
- Low returns on capital reflect management’s struggle to allocate funds effectively
STERIS’s stock price of $238.53 implies a valuation ratio of 23.9x forward P/E. Dive into our free research report to see why there are better opportunities than STE.
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