A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Target (TGT)
Trailing 12-Month Free Cash Flow Margin: 2.7%
With a higher focus on style and aesthetics compared to other large general merchandise retailers, Target (NYSE: TGT) serves the suburban consumer who is looking for a wide range of products under one roof.
Why Do We Think TGT Will Underperform?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Gross margin of 28.1% is an output of its commoditized inventory
- Poor expense management has led to an operating margin of 5.1% that is below the industry average
At $114.24 per share, Target trades at 14.3x forward P/E. If you’re considering TGT for your portfolio, see our FREE research report to learn more.
Janus (JBI)
Trailing 12-Month Free Cash Flow Margin: 12.9%
Standing out with its digital keyless entry into self-storage room technology, Janus (NYSE: JBI) is a provider of easily accessible self-storage solutions.
Why Is JBI Not Exciting?
- Annual sales declines of 8.9% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share have contracted by 23.2% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Janus is trading at $5.26 per share, or 8.4x forward P/E. Read our free research report to see why you should think twice about including JBI in your portfolio.
Expeditors (EXPD)
Trailing 12-Month Free Cash Flow Margin: 8.6%
Expeditors (NYSE: EXPD) offers air and ocean freight as well as brokerage services.
Why Are We Wary of EXPD?
- Annual sales growth of 2.9% over the last five years lagged behind its industrials peers as its large revenue base made it difficult to generate incremental demand
- High input costs result in an inferior gross margin of 13.5% that must be offset through higher volumes
- Eroding returns on capital suggest its historical profit centers are aging
Expeditors’s stock price of $146.35 implies a valuation ratio of 24.4x forward P/E. Dive into our free research report to see why there are better opportunities than EXPD.
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