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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here are three cash-producing companies to steer clear of and a few better alternatives.
FOX (FOXA)
Trailing 12-Month Free Cash Flow Margin: 18.4%
Founded in 1915, Fox (NASDAQ: FOXA) is a diversified media company, operating prominent cable news, television broadcasting, and digital media platforms.
Why Are We Out on FOXA?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 4.5% for the last two years
- Sales are projected to tank by 2.6% over the next 12 months as demand evaporates
- Projected 4.5 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
FOX is trading at $59.80 per share, or 13.9x forward P/E. If you’re considering FOXA for your portfolio, see our FREE research report to learn more.
Northrop Grumman (NOC)
Trailing 12-Month Free Cash Flow Margin: 3.2%
Responsible for the development of the first stealth bomber, Northrop Grumman (NYSE: NOC) specializes in providing aerospace, defense, and security solutions for various industry applications.
Why Should You Sell NOC?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 5.6 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
Northrop Grumman’s stock price of $587.89 implies a valuation ratio of 20.7x forward P/E. Read our free research report to see why you should think twice about including NOC in your portfolio.
Mettler-Toledo (MTD)
Trailing 12-Month Free Cash Flow Margin: 21.9%
With roots dating back to the precision balance innovations of Swiss engineer Erhard Mettler, Mettler-Toledo (NYSE: MTD) manufactures precision weighing instruments, analytical equipment, and product inspection systems used in laboratories, industrial settings, and food retail.
Why Do We Think Twice About MTD?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Estimated sales growth of 4.5% for the next 12 months is soft and implies weaker demand
- Inability to adjust its cost structure while its revenue declined over the last two years led to a 1.1 percentage point drop in the company’s adjusted operating margin
At $1,283 per share, Mettler-Toledo trades at 29.2x forward P/E. Dive into our free research report to see why there are better opportunities than MTD.
High-Quality Stocks for All Market Conditions
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