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 avoid and some better opportunities instead.
Molson Coors (TAP)
Trailing 12-Month Free Cash Flow Margin: 9.9%
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 Steer Clear of TAP?
- Declining unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 33.7 percentage points
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its decreasing returns suggest its historical profit centers are aging
Molson Coors’s stock price of $46.44 implies a valuation ratio of 8.5x forward P/E. Check out our free in-depth research report to learn more about why TAP doesn’t pass our bar.
Mister Car Wash (MCW)
Trailing 12-Month Free Cash Flow Margin: 2.6%
Formerly known as Hotshine Holdings, Mister Car Wash (NYSE: MCW) offers car washes across the United States through its conveyorized service.
Why Should You Sell MCW?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Cash-burning history makes us doubt the long-term viability of its business model
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $5.11 per share, Mister Car Wash trades at 11.3x forward P/E. Read our free research report to see why you should think twice about including MCW in your portfolio.
Griffon (GFF)
Trailing 12-Month Free Cash Flow Margin: 12.4%
Initially in the defense industry, Griffon (NYSE: GFF) is a now diversified company specializing in home improvement, professional equipment, and building products.
Why Do We Think Twice About GFF?
- Annual sales declines of 4.4% for the past two years show its products and services struggled to connect with the market during this cycle
- Projected sales for the next 12 months are flat and suggest demand will be subdued
Griffon is trading at $69.99 per share, or 11.7x forward P/E. To fully understand why you should be careful with GFF, check out our full research report (it’s free for active Edge members).
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