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.
Strategic Education (STRA)
Trailing 12-Month Free Cash Flow Margin: 10.5%
Formed through the merger of Strayer Education and Capella Education in 2018, Strategic Education (NASDAQ:STRA) is a career-focused higher education provider.
Why Do We Think STRA Will Underperform?
- Demand for its offerings was relatively low as its number of domestic students has underwhelmed
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 5.2% annually
- Free cash flow margin is expected to remain in place over the coming year
At $83.91 per share, Strategic Education trades at 13.6x forward P/E. Check out our free in-depth research report to learn more about why STRA doesn’t pass our bar.
Schneider (SNDR)
Trailing 12-Month Free Cash Flow Margin: 5.1%
Employing thousands of drivers across the country to make deliveries, Schneider (NYSE:SNDR) makes full truckload and intermodal deliveries regionally and across borders.
Why Are We Out on SNDR?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Earnings per share fell by 10.2% annually over the last five 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
Schneider’s stock price of $29.18 implies a valuation ratio of 32.4x forward P/E. To fully understand why you should be careful with SNDR, check out our full research report (it’s free).
CoreCivic (CXW)
Trailing 12-Month Free Cash Flow Margin: 5.9%
Originally founded in 1983 as the first private prison company in the United States, CoreCivic (NYSE:CXW) operates correctional facilities, detention centers, and residential reentry programs for government agencies across the United States.
Why Should You Sell CXW?
- Sluggish trends in its average available beds suggest customers aren’t adopting its solutions as quickly as the company hoped
- Earnings per share lagged its peers over the last four years as they only grew by 1.9% annually
- Free cash flow margin dropped by 9.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
CoreCivic is trading at $19.85 per share, or 15.4x forward P/E. Read our free research report to see why you should think twice about including CXW in your portfolio.
Stocks We Like More
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