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. That said, here are three cash-producing companies to avoid and some better opportunities instead.
Conagra (CAG)
Trailing 12-Month Free Cash Flow Margin: 10%
Founded in 1919 as Nebraska Consolidated Mills in Omaha, Nebraska, Conagra Brands today (NYSE: CAG) boasts a diverse portfolio of packaged foods brands that includes everything from whipped cream to jarred pickles to frozen meals.
Why Should You Sell CAG?
- Falling unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Projected sales decline of 2% for the next 12 months points to an even tougher demand environment ahead
- ROIC of 5.3% reflects management’s challenges in identifying attractive investment opportunities, and its falling returns suggest its earlier profit pools are drying up
At $18.28 per share, Conagra trades at 10.3x forward P/E. If you’re considering CAG for your portfolio, see our FREE research report to learn more.
Atkore (ATKR)
Trailing 12-Month Free Cash Flow Margin: 9.1%
Protecting the things that power our world, Atkore (NYSE: ATKR) designs and manufactures electrical safety products.
Why Are We Out on ATKR?
- 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
- 5.8 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
- Diminishing returns on capital suggest its earlier profit pools are drying up
Atkore’s stock price of $66.40 implies a valuation ratio of 12.7x forward P/E. Read our free research report to see why you should think twice about including ATKR in your portfolio.
Tennant (TNC)
Trailing 12-Month Free Cash Flow Margin: 5.2%
As the world’s largest manufacturer of autonomous mobile robots, Tennant (NYSE: TNC) designs, manufactures, and sells cleaning products to various sectors.
Why Is TNC Risky?
- Annual revenue growth of 3% over the last two years was below our standards for the industrials sector
- Projected sales are flat for the next 12 months, implying demand will slow from its two-year trend
- Earnings per share fell by 2.1% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
Tennant is trading at $79.47 per share, or 12.8x forward P/E. Check out our free in-depth research report to learn more about why TNC doesn’t pass our bar.
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