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. That said, here are three cash-producing companies to steer clear of and a few better alternatives.
EverQuote (EVER)
Trailing 12-Month Free Cash Flow Margin: 13%
Aiming to simplify a once complicated process, EverQuote (NASDAQ: EVER) is an online insurance marketplace where consumers can compare and purchase various types of insurance from different providers
Why Are We Hesitant About EVER?
- High marketing expenses suggest it needs to spend heavily on new customer acquisition to sustain momentum
EverQuote is trading at $26.61 per share, or 12.2x forward EV/EBITDA. Check out our free in-depth research report to learn more about why EVER doesn’t pass our bar.
E.W. Scripps (SSP)
Trailing 12-Month Free Cash Flow Margin: 10.9%
Founded as a chain of daily newspapers, E.W. Scripps (NASDAQ: SSP) is a diversified media enterprise operating a range of local television stations, national networks, and digital media platforms.
Why Do We Pass on SSP?
- 1.2% annual revenue growth over the last two years was slower than its consumer discretionary peers
- Free cash flow margin is forecasted to shrink by 8.2 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
E.W. Scripps’s stock price of $3.37 implies a valuation ratio of 1.2x forward EV-to-EBITDA. To fully understand why you should be careful with SSP, check out our full research report (it’s free).
Exact Sciences (EXAS)
Trailing 12-Month Free Cash Flow Margin: 6.9%
With a mission to detect cancer earlier when it's more treatable, Exact Sciences (NASDAQ: EXAS) develops and markets cancer screening and diagnostic tests, including its flagship Cologuard stool-based colorectal cancer screening test.
Why Is EXAS Not Exciting?
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Negative returns on capital show management lost money while trying to expand the business
- 11× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $48.75 per share, Exact Sciences trades at 73.7x forward P/E. If you’re considering EXAS for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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