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. That said, here are three cash-producing companies to steer clear of and a few better alternatives.
Boston Beer (SAM)
Trailing 12-Month Free Cash Flow Margin: 10.7%
Known for its flavorful beverages challenging the status quo, Boston Beer (NYSE: SAM) is a pioneer in craft brewing and a symbol of American innovation in the alcoholic beverage industry.
Why Do We Think SAM Will Underperform?
- Sales tumbled by 2.2% annually over the last three years, showing consumer trends are working against it
- Overall productivity fell over the last year as its plummeting sales were accompanied by a decline in its operating margin
- Underwhelming -0.7% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging
Boston Beer’s stock price of $180.15 implies a valuation ratio of 18.3x forward P/E. To fully understand why you should be careful with SAM, check out our full research report (it’s free).
Celsius (CELH)
Trailing 12-Month Free Cash Flow Margin: 9.9%
With its proprietary MetaPlus formula as the basis for key products, Celsius (NASDAQ: CELH) offers energy drinks that feature natural ingredients to help in fitness and weight management.
Why Are We Wary of CELH?
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 1.7 percentage points
- 5.6 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
- ROIC of 8.2% reflects management’s challenges in identifying attractive investment opportunities
Celsius is trading at $27.12 per share, or 16.5x forward P/E. Dive into our free research report to see why there are better opportunities than CELH.
CooperCompanies (COO)
Trailing 12-Month Free Cash Flow Margin: 13.5%
With a history dating back to 1958 and a portfolio spanning two distinct healthcare segments, Cooper Companies (NASDAQ: COO) develops and manufactures medical devices focused on vision care through contact lenses and women's health including fertility products and services.
Why Are We Hesitant About COO?
- Muted 6.5% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Estimated sales growth of 4.2% for the next 12 months implies demand will slow from its two-year trend
- Underwhelming 4.6% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $70.40 per share, CooperCompanies trades at 14.8x forward P/E. If you’re considering COO for your portfolio, see our FREE research report to learn more.
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