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 to avoid and some better opportunities instead.
Herbalife (HLF)
Trailing 12-Month Free Cash Flow Margin: 7.3%
With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE: HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.
Why Is HLF Not Exciting?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Estimated sales growth of 2.7% for the next 12 months is soft and implies weaker demand
- Issuance of new shares over the last three years caused its earnings per share to fall by 9.5% annually
Herbalife’s stock price of $11.89 implies a valuation ratio of 4.4x forward P/E. If you’re considering HLF for your portfolio, see our FREE research report to learn more.
Viasat (VSAT)
Trailing 12-Month Free Cash Flow Margin: 12.9%
Operating a fleet of 23 satellites that orbit the Earth and beam connectivity from space, Viasat (NASDAQ: VSAT) provides satellite-based communications networks and services for airlines, maritime vessels, governments, businesses, and residential customers worldwide.
Why Does VSAT Fall Short?
- Muted 4.1% annual revenue growth over the last two years shows its demand lagged behind its business services peers
- Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 3.2% annually
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
Viasat is trading at $71.16 per share, or 231.3x forward P/E. Dive into our free research report to see why there are better opportunities than VSAT.
Murphy Oil (MUR)
Trailing 12-Month Free Cash Flow Margin: 6.6%
Operating in waters over a mile deep in the Gulf of Mexico and extracting hydrocarbons from tight shale rock formations in Texas, Murphy Oil (NYSE: MUR) explores for and produces crude oil, natural gas, and natural gas liquids from fields in North America and Asia.
Why Does MUR Worry Us?
- Costs have risen faster than its revenue over the last five years, causing its EBITDA margin to decline by 11.7 percentage points
At $38.95 per share, Murphy Oil trades at 9.9x forward P/E. Read our free research report to see why you should think twice about including MUR in your portfolio.
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