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.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
eBay (EBAY)
Trailing 12-Month Free Cash Flow Margin: 13.5%
Originally known as the first online auction site, eBay (NASDAQ:EBAY) is one of the world’s largest online marketplaces.
Why Do We Think Twice About EBAY?
- Market opportunities are plateauing as its active buyers were flat over the last two years
- Monetization and engagement metrics haven’t budged over the last two years, suggesting it may need to increase the efficacy of its platform
- Efficiency has decreased over the last few years as its EBITDA margin fell by 4.3 percentage points
At $91.03 per share, eBay trades at 12.3x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than EBAY.
Simply Good Foods (SMPL)
Trailing 12-Month Free Cash Flow Margin: 12%
Best known for its Atkins brand that was inspired by the popular diet of the same name, Simply Good Foods (NASDAQ:SMPL) is a packaged food company whose offerings help customers achieve their healthy eating or weight loss goals.
Why Does SMPL Fall Short?
- Modest revenue base of $1.46 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Estimated sales growth of 1.1% for the next 12 months implies demand will slow from its three-year trend
- Free cash flow margin shrank by 5.5 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
Simply Good Foods’s stock price of $24.29 implies a valuation ratio of 12.6x forward P/E. If you’re considering SMPL for your portfolio, see our FREE research report to learn more.
Korn Ferry (KFY)
Trailing 12-Month Free Cash Flow Margin: 10%
With clients including 97% of the S&P 100 and operations in 103 offices across 51 countries, Korn Ferry (NYSE:KFY) is a global consulting firm that helps organizations design optimal structures, recruit talent, develop leaders, and create effective compensation strategies.
Why Does KFY Worry Us?
- Annual sales declines of 1.3% for the past two years show its products and services struggled to connect with the market during this cycle
- Estimated sales growth of 2.7% for the next 12 months is soft and implies weaker demand
- Waning returns on capital imply its previous profit engines are losing steam
Korn Ferry is trading at $68.27 per share, or 13x forward P/E. To fully understand why you should be careful with KFY, check out our full research report (it’s free for active Edge members).
Stocks We Like More
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