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. That said, here are three cash-producing companies to steer clear of and a few better alternatives.
Mondelez (MDLZ)
Trailing 12-Month Free Cash Flow Margin: 7.7%
Founded as Nabisco in 1903, Mondelez (NASDAQ:MDLZ) is a packaged snacks powerhouse best known for its Oreo, Cadbury, Toblerone, Ritz, and Trident brands.
Why Are We Wary of MDLZ?
- Flat unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 4.7 percentage points
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 2.3 percentage points
At $61.81 per share, Mondelez trades at 19.2x forward P/E. Dive into our free research report to see why there are better opportunities than MDLZ.
Carter's (CRI)
Trailing 12-Month Free Cash Flow Margin: 5%
Rumored to sell more than 10 products for every child born in the United States, Carter's (NYSE:CRI) is an American designer and marketer of children's apparel.
Why Do We Steer Clear of CRI?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Sales are projected to be flat over the next 12 months and imply weak demand
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Carter's is trading at $29.60 per share, or 11.3x forward P/E. To fully understand why you should be careful with CRI, check out our full research report (it’s free).
Sanmina (SANM)
Trailing 12-Month Free Cash Flow Margin: 4.5%
Founded in 1980, Sanmina (NASDAQ:SANM) is an electronics manufacturing services company offering end-to-end solutions for various industries.
Why Should You Dump SANM?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6% annually over the last two years
- Gross margin of 8.2% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
Sanmina’s stock price of $116.40 implies a valuation ratio of 17x forward P/E. Read our free research report to see why you should think twice about including SANM in your portfolio.
Stocks We Like More
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