A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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 that don’t make the cut and some better opportunities instead.
Reynolds (REYN)
Trailing 12-Month Free Cash Flow Margin: 8.2%
Best known for its aluminum foil, Reynolds (NASDAQ: REYN) is a household products company whose products focus on food storage, cooking, and waste.
Why Should You Dump REYN?
- Shrinking unit sales over the past two years suggest it might have to lower prices to stimulate growth
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Free cash flow margin shrank by 5.8 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
Reynolds’s stock price of $23.50 implies a valuation ratio of 14.6x forward P/E. Dive into our free research report to see why there are better opportunities than REYN.
Regal Rexnord (RRX)
Trailing 12-Month Free Cash Flow Margin: 15.2%
Headquartered in Milwaukee, Regal Rexnord (NYSE: RRX) provides power transmission and industrial automation products.
Why Are We Cautious About RRX?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- ROIC of 5.1% reflects management’s challenges in identifying attractive investment opportunities, and its falling returns suggest its earlier profit pools are drying up
Regal Rexnord is trading at $143.79 per share, or 13.6x forward P/E. To fully understand why you should be careful with RRX, check out our full research report (it’s free for active Edge members).
West Pharmaceutical Services (WST)
Trailing 12-Month Free Cash Flow Margin: 11.6%
Founded in 1923 and serving as a critical link in the pharmaceutical supply chain, West Pharmaceutical Services (NYSE: WST) manufactures specialized packaging, containment systems, and delivery devices for injectable drugs and healthcare products.
Why Does WST Give Us Pause?
- Annual revenue growth of 1.6% over the last two years was below our standards for the healthcare sector
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 3.9 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
At $267.19 per share, West Pharmaceutical Services trades at 38x forward P/E. Dive into our free research report to see why there are better opportunities than WST.
Stocks We Like More
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