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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Hasbro (HAS)
Trailing 12-Month Free Cash Flow Margin: 14.5%
Credited with the creation of toys such as Mr. Potato Head and the Rubik’s Cube, Hasbro (NASDAQ:HAS) is a global entertainment company offering a diverse range of toys, games, and multimedia experiences for children and families.
Why Do We Steer Clear of HAS?
- Sales tumbled by 3.5% annually over the last five years, showing consumer trends are working against its favor
- Persistent operating margin losses suggest the business manages its expenses poorly
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $71.81 per share, Hasbro trades at 16.9x forward P/E. Dive into our free research report to see why there are better opportunities than HAS.
Sealed Air (SEE)
Trailing 12-Month Free Cash Flow Margin: 7.8%
Founded in 1960, Sealed Air Corporation (NYSE: SEE) specializes in the development and production of protective and food packaging solutions, serving a variety of industries.
Why Do We Pass on SEE?
- Declining unit sales over the past two years imply it may need to invest in improvements to get back on track
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Eroding returns on capital suggest its historical profit centers are aging
Sealed Air is trading at $30.79 per share, or 10.1x forward P/E. Read our free research report to see why you should think twice about including SEE in your portfolio.
Delta (DAL)
Trailing 12-Month Free Cash Flow Margin: 4.6%
One of the ‘Big Four’ airlines in the US, Delta Air Lines (NYSE:DAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.
Why Do We Avoid DAL?
- Number of revenue passenger miles has disappointed over the past two years, indicating weak demand for its offerings
- Estimated sales decline of 1.1% for the next 12 months implies a challenging demand environment
- Negative returns on capital show that some of its growth strategies have backfired
Delta’s stock price of $49.40 implies a valuation ratio of 7.8x forward P/E. If you’re considering DAL for your portfolio, see our FREE research report to learn more.
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