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. That said, here are three cash-producing companies to steer clear of and a few better alternatives.
Sherwin-Williams (SHW)
Trailing 12-Month Free Cash Flow Margin: 8.9%
Widely known for its success in the paint industry, Sherwin-Williams (NYSE: SHW) is a manufacturer of paints, coatings, and related products.
Why Is SHW Not Exciting?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.1% over the last two years was below our standards for the industrials sector
- Estimated sales growth of 4.2% for the next 12 months is soft and implies weaker demand
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 5% annually
Sherwin-Williams’s stock price of $313.44 implies a valuation ratio of 26.9x forward P/E. If you’re considering SHW for your portfolio, see our FREE research report to learn more.
Repligen (RGEN)
Trailing 12-Month Free Cash Flow Margin: 13.9%
With over 13 strategic acquisitions since 2012 to build its comprehensive bioprocessing portfolio, Repligen (NASDAQ: RGEN) develops and manufactures specialized technologies that improve the efficiency and flexibility of biological drug manufacturing processes.
Why Do We Steer Clear of RGEN?
- Modest revenue base of $763.3 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 18.1 percentage points
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $137.50 per share, Repligen trades at 66.6x forward P/E. Read our free research report to see why you should think twice about including RGEN in your portfolio.
Equifax (EFX)
Trailing 12-Month Free Cash Flow Margin: 17.1%
Holding detailed financial records on over 800 million consumers worldwide and dating back to 1899, Equifax (NYSE: EFX) is a global data analytics company that collects, analyzes, and sells consumer and business credit information to lenders, employers, and other businesses.
Why Are We Wary of EFX?
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 3.6 percentage points
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 1.1% annually
Equifax is trading at $167.56 per share, or 18.6x forward P/E. To fully understand why you should be careful with EFX, check out our full research report (it’s free).
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