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. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
General Mills (GIS)
Trailing 12-Month Free Cash Flow Margin: 11.8%
Best known for its portfolio of powerhouse breakfast cereal brands, General Mills (NYSE:GIS) is a packaged foods company that has also made a mark in cereals, baking products, and snacks.
Why Does GIS Give Us Pause?
- Shrinking unit sales over the past two years suggest it might have to lower prices to stimulate growth
- Projected sales decline of 4.2% for the next 12 months points to an even tougher demand environment ahead
- Earnings growth underperformed the sector average over the last three years as its EPS grew by just 2.2% annually
General Mills is trading at $49.83 per share, or 12.7x forward P/E. To fully understand why you should be careful with GIS, check out our full research report (it’s free).
Avery Dennison (AVY)
Trailing 12-Month Free Cash Flow Margin: 6.9%
Founded as Kum Kleen Products, Avery Dennison (NYSE:AVY) is a manufacturer of adhesive materials, display graphics, and packaging products, serving various industries.
Why Do We Think Twice About AVY?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Free cash flow margin shrank by 3.4 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Waning returns on capital imply its previous profit engines are losing steam
Avery Dennison’s stock price of $175.88 implies a valuation ratio of 17.1x forward P/E. Read our free research report to see why you should think twice about including AVY in your portfolio.
Addus HomeCare (ADUS)
Trailing 12-Month Free Cash Flow Margin: 7.4%
Serving approximately 66,000 clients across 22 states with a focus on "dual eligible" Medicare and Medicaid beneficiaries, Addus HomeCare (NASDAQ:ADUS) provides in-home personal care, hospice, and home health services to elderly, chronically ill, and disabled individuals.
Why Is ADUS Not Exciting?
- Modest revenue base of $1.27 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
At $114.18 per share, Addus HomeCare trades at 17.8x forward P/E. If you’re considering ADUS for your portfolio, see our FREE research report to learn more.
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