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.
Charter (CHTR)
Trailing 12-Month Free Cash Flow Margin: 9.5%
Operating as Spectrum, Charter (NASDAQ: CHTR) is a leading telecommunications company offering cable television, high-speed internet, and voice services across the United States.
Why Is CHTR Risky?
- Sluggish trends in its internet subscribers suggest customers aren’t adopting its solutions as quickly as the company hoped
- Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
- Improving returns on capital suggest management is identifying more profitable investments
At $207.01 per share, Charter trades at 5x forward P/E. Check out our free in-depth research report to learn more about why CHTR doesn’t pass our bar.
Sotera Health Company (SHC)
Trailing 12-Month Free Cash Flow Margin: 7.5%
With a critical role in ensuring the safety of millions of patients worldwide, Sotera Health (NASDAQGS:SHC) provides sterilization services, lab testing, and advisory services to ensure medical devices, pharmaceuticals, and food products are safe for use.
Why Are We Hesitant About SHC?
- Smaller revenue base of $1.15 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Estimated sales growth of 4.4% for the next 12 months implies demand will slow from its two-year trend
- Free cash flow margin dropped by 9.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Sotera Health Company’s stock price of $18.80 implies a valuation ratio of 20.3x forward P/E. If you’re considering SHC for your portfolio, see our FREE research report to learn more.
NVR (NVR)
Trailing 12-Month Free Cash Flow Margin: 12.4%
Known for its unique land acquisition strategy, NVR (NYSE: NVR) is a respected homebuilder and mortgage company in the United States.
Why Does NVR Fall Short?
- Flat backlog over the past two years has disappointed and shows fewer customers signed long-term contracts
- Earnings per share fell by 2.1% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
NVR is trading at $7,119 per share, or 17.8x forward P/E. To fully understand why you should be careful with NVR, check out our full research report (it’s free for active Edge members).
Stocks We Like More
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