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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here are three cash-producing companies to steer clear of and a few better alternatives.
Wix (WIX)
Trailing 12-Month Free Cash Flow Margin: 27.9%
Powering over 263 million registered users worldwide with its AI-driven tools, Wix (NASDAQ: WIX) provides a cloud-based platform that helps individuals and businesses create and manage professional websites without requiring coding skills.
Why Do We Think Twice About WIX?
- Offerings struggled to generate meaningful interest as its average billings growth of 13.8% over the last year did not impress
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 12.2 percentage points
- Projected 9.9 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
At $54.73 per share, Wix trades at 1.3x forward price-to-sales. If you’re considering WIX for your portfolio, see our FREE research report to learn more.
The Marzetti Company (MZTI)
Trailing 12-Month Free Cash Flow Margin: 12.9%
Known for its frozen garlic bread and Parkerhouse rolls, The Marzetti Company (NASDAQ: MZTI) sells bread, dressing, and dips to the retail and food service channels.
Why Are We Cautious About MZTI?
- Sales trends were unexciting over the last three years as its 1.8% annual growth was below the typical consumer staples company
- Smaller revenue base of $1.92 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Gross margin of 23.5% is an output of its commoditized products
The Marzetti Company is trading at $114.06 per share, or 16.1x forward P/E. Read our free research report to see why you should think twice about including MZTI in your portfolio.
International Flavors & Fragrances (IFF)
Trailing 12-Month Free Cash Flow Margin: 3.7%
Responsible for the scents in your favorite perfumes and the flavors in your daily snacks, International Flavors & Fragrances (NYSE: IFF) creates and manufactures ingredients for food, beverages, personal care products, and pharmaceuticals used in countless consumer goods.
Why Do We Avoid IFF?
- Annual revenue declines of 4.1% over the last three years indicate problems with its market positioning
- Sales are projected to be flat over the next 12 months and imply weak demand
- Negative returns on capital show that some of its growth strategies have backfired
International Flavors & Fragrances’s stock price of $73.11 implies a valuation ratio of 17.3x forward P/E. Dive into our free research report to see why there are better opportunities than IFF.
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