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.
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.
Getty Images (GETY)
Trailing 12-Month Free Cash Flow Margin: 1.4%
With a vast library of over 562 million visual assets documenting everything from breaking news to iconic historical moments, Getty Images (NYSE: GETY) is a global visual content marketplace that licenses photos, videos, illustrations, and music to businesses, media outlets, and creative professionals.
Why Should You Sell GETY?
- Sales trends were unexciting over the last two years as its 1.3% annual growth was below the typical business services company
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 3.9 percentage points
- 12.1 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Getty Images is trading at $2.08 per share, or 2.9x forward EV-to-EBITDA. If you’re considering GETY for your portfolio, see our FREE research report to learn more.
Wabash (WNC)
Trailing 12-Month Free Cash Flow Margin: 2%
With its first trailer reportedly built on two sawhorses, Wabash (NYSE: WNC) offers semi trailers, liquid transportation containers, truck bodies, and equipment for moving goods.
Why Do We Pass on WNC?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 36.2% declines over the past two years
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 22.3% annually, worse than its revenue
- High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $11.37 per share, Wabash trades at 15.2x forward P/E. Read our free research report to see why you should think twice about including WNC in your portfolio.
Cadre (CDRE)
Trailing 12-Month Free Cash Flow Margin: 5.8%
Originally known as Safariland, Cadre (NYSE: CDRE) specializes in manufacturing and distributing safety and survivability equipment for first responders.
Why Are We Hesitant About CDRE?
- Efficiency has decreased over the last five years as its operating margin fell by 1.7 percentage points
- Earnings per share were flat over the last four years and fell short of the peer group average
- Free cash flow margin dropped by 7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Cadre’s stock price of $32.77 implies a valuation ratio of 22x forward P/E. Check out our free in-depth research report to learn more about why CDRE doesn’t pass our bar.
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