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.
Molson Coors (TAP)
Trailing 12-Month Free Cash Flow Margin: 8.7%
Sporting an impressive roster of iconic beer brands, Molson Coors (NYSE:TAP) is a global brewing giant with a rich history dating back more than two centuries.
Why Do We Think Twice About TAP?
- Falling unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
- Low returns on capital reflect management’s struggle to allocate funds effectively
Molson Coors’s stock price of $51.13 implies a valuation ratio of 8.4x forward P/E. Read our free research report to see why you should think twice about including TAP in your portfolio.
Figs (FIGS)
Trailing 12-Month Free Cash Flow Margin: 7%
Rising to fame via TikTok and founded in 2013 by Heather Hasson and Trina Spear, Figs (NYSE:FIGS) is a healthcare apparel company known for its stylish approach to medical attire and uniforms.
Why Should You Dump FIGS?
- Performance surrounding its active customers has lagged its peers
- Free cash flow margin is forecasted to shrink by 3.9 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Figs is trading at $6.96 per share, or 125.6x forward P/E. Check out our free in-depth research report to learn more about why FIGS doesn’t pass our bar.
Waste Connections (WCN)
Trailing 12-Month Free Cash Flow Margin: 12.3%
Operating a network of municipal solid waste landfills in the U.S. and Canada, Waste Connections (NYSE:WCN) is North America's third-largest waste management company providing collection, disposal, and recycling services.
Why Are We Cautious About WCN?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 4.1 percentage points
- ROIC of 6.6% reflects management’s challenges in identifying attractive investment opportunities, and its falling returns suggest its earlier profit pools are drying up
At $184.25 per share, Waste Connections trades at 33.2x forward P/E. Dive into our free research report to see why there are better opportunities than WCN.
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