A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Ralph Lauren (RL)
Trailing 12-Month Free Cash Flow Margin: 15.2%
Originally founded as a necktie company, Ralph Lauren (NYSE: RL) is an iconic American fashion brand known for its classic and sophisticated style.
Why Does RL Worry Us?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Estimated sales growth of 3.7% for the next 12 months is soft and implies weaker demand
- Free cash flow margin is forecasted to shrink by 2.6 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
Ralph Lauren is trading at $203 per share, or 15.9x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than RL.
Boise Cascade (BCC)
Trailing 12-Month Free Cash Flow Margin: 3.1%
Formed through the merger of two lumber companies, Boise Cascade Company (NYSE: BCC) manufactures and distributes wood products and other building materials.
Why Should You Dump BCC?
- Sales tumbled by 10.5% annually over the last two years, showing market trends are working against its favor during this cycle
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Waning returns on capital imply its previous profit engines are losing steam
At $92.90 per share, Boise Cascade trades at 9.2x forward price-to-earnings. Read our free research report to see why you should think twice about including BCC in your portfolio.
International Paper (IP)
Trailing 12-Month Free Cash Flow Margin: 4.1%
Established in 1898, International Paper (NYSE: IP) produces containerboard, pulp, paper, and materials used in packaging and printing applications.
Why Do We Pass on IP?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.6% annually over the last five years
- 7.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
International Paper’s stock price of $46.28 implies a valuation ratio of 15.1x forward price-to-earnings. If you’re considering IP for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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