A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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.
Microchip Technology (MCHP)
Trailing 12-Month Free Cash Flow Margin: 17.1%
Spun out from General Instrument in 1987, Microchip Technology (NASDAQ: MCHP) is a leading provider of microcontrollers and integrated circuits used mainly in the automotive world, especially in electric vehicles and their charging devices.
Why Do We Pass on MCHP?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 4.2% annually over the last five years
- Sales were less profitable over the last five years as its earnings per share fell by 18.5% annually, worse than its revenue declines
- Free cash flow margin dropped by 15.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Microchip Technology is trading at $62.42 per share, or 35.7x forward P/E. If you’re considering MCHP for your portfolio, see our FREE research report to learn more.
Fresh Del Monte Produce (FDP)
Trailing 12-Month Free Cash Flow Margin: 4.1%
Translating to "of the mountain" in Spanish, Fresh Del Monte (NYSE: FDP) is a leader in providing high-quality, sustainably grown fresh fruits and vegetables.
Why Should You Dump FDP?
- Products fail to spark excitement with consumers, as seen in its flat sales over the last three years
- Gross margin of 8.2% is below its competitors, leaving less money to invest in areas like marketing and production facilities
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Fresh Del Monte Produce’s stock price of $35.35 implies a valuation ratio of 41.9x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including FDP in your portfolio.
Rockwell Automation (ROK)
Trailing 12-Month Free Cash Flow Margin: 16.4%
One of the first companies to address industrial automation, Rockwell Automation (NYSE: ROK) sells products that help customers extract more efficiency from their machinery.
Why Is ROK Risky?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 8.9% annually, worse than its revenue
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $368 per share, Rockwell Automation trades at 33x forward P/E. Dive into our free research report to see why there are better opportunities than ROK.
Stocks We Like More
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