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 that don’t make the cut and some better opportunities instead.
BlackLine (BL)
Trailing 12-Month Free Cash Flow Margin: 23.1%
Started in 2001 by software engineer Therese Tucker, one of the very few women founders who took their companies public, BlackLine (NASDAQ:BL) provides software for organizations to automate accounting and finance tasks.
Why Does BL Fall Short?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 7.4% underwhelmed
- Estimated sales growth of 7.5% for the next 12 months implies demand will slow from its three-year trend
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 2.1 percentage points
At $54.78 per share, BlackLine trades at 5x forward price-to-sales. Check out our free in-depth research report to learn more about why BL doesn’t pass our bar.
Lattice Semiconductor (LSCC)
Trailing 12-Month Free Cash Flow Margin: 24%
A global leader in its category, Lattice Semiconductor (NASDAQ:LSCC) is a semiconductor designer specializing in customer-programmable chips that enhance CPU performance for intensive tasks such as machine learning.
Why Is LSCC Not Exciting?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 16.1% annually over the last two years
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 9.7 percentage points
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 5.6% annually
Lattice Semiconductor is trading at $50.30 per share, or 42.8x forward P/E. Read our free research report to see why you should think twice about including LSCC in your portfolio.
GEO Group (GEO)
Trailing 12-Month Free Cash Flow Margin: 5.5%
With a global footprint spanning three continents and approximately 81,000 beds across 100 facilities, GEO Group (NYSE:GEO) operates secure facilities, processing centers, and reentry services for government agencies in the United States, Australia, and South Africa.
Why Do We Steer Clear of GEO?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Earnings per share fell by 31.5% annually over the last five years while its revenue was flat, showing each sale was less profitable
- Free cash flow margin shrank by 8.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
GEO Group’s stock price of $23.27 implies a valuation ratio of 13.1x forward P/E. Dive into our free research report to see why there are better opportunities than GEO.
Stocks We Like More
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