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 avoid and some better opportunities instead.
Wynn Resorts (WYNN)
Trailing 12-Month Free Cash Flow Margin: 10.4%
Founded by the former Mirage Resorts CEO, Wynn Resorts (NASDAQ:WYNN) is a global developer and operator of high-end hotels and casinos, known for its luxurious properties and premium guest services.
Why Do We Pass on WYNN?
- Sales trends were unexciting over the last five years as its 18.3% annual growth was below the typical consumer discretionary company
- Low free cash flow margin of 12.1% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $114.25 per share, Wynn Resorts trades at 20.8x forward P/E. If you’re considering WYNN for your portfolio, see our FREE research report to learn more.
Wabash (WNC)
Trailing 12-Month Free Cash Flow Margin: 4.2%
With its first trailer reportedly built on two sawhorses, Wabash (NYSE:WNC) offers semi trailers, liquid transportation containers, truck bodies, and equipment for moving goods.
Why Is WNC Risky?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 36.2% decline in its backlog
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- High net-debt-to-EBITDA ratio of 37× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Wabash’s stock price of $10.44 implies a valuation ratio of 13.1x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than WNC.
Huntington Ingalls (HII)
Trailing 12-Month Free Cash Flow Margin: 4.7%
Building Nimitz-class aircraft carriers used in active service, Huntington Ingalls (NYSE:HII) develops marine vessels and their mission systems and maintenance services.
Why Do We Think HII Will Underperform?
- Backlog growth averaged a weak 4.9% over the past two years, suggesting it may need to tweak its product roadmap or go-to-market strategy
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 1.1% annually while its revenue grew
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Huntington Ingalls is trading at $426.94 per share, or 25.1x forward P/E. Check out our free in-depth research report to learn more about why HII doesn’t pass our bar.
Stocks We Like More
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