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. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
PepsiCo (PEP)
Trailing 12-Month Free Cash Flow Margin: 8.1%
With a history that goes back more than a century, PepsiCo (NASDAQ:PEP) is a household name in food and beverages today and best known for its flagship soda.
Why Does PEP Give Us Pause?
- Shrinking unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Estimated sales growth of 3.2% for the next 12 months is soft and implies weaker demand
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 2.1 percentage points
PepsiCo is trading at $145.24 per share, or 18x forward P/E. If you’re considering PEP for your portfolio, see our FREE research report to learn more.
Kontoor Brands (KTB)
Trailing 12-Month Free Cash Flow Margin: 14.3%
Founded in 2019 after separating from VF Corporation, Kontoor Brands (NYSE:KTB) is a clothing company known for its high-quality denim products.
Why Are We Wary of KTB?
- Products and services fail to spark excitement with consumers, as seen in its flat sales over the last two years
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 9.4% annually
At $64.87 per share, Kontoor Brands trades at 13.3x forward P/E. Check out our free in-depth research report to learn more about why KTB doesn’t pass our bar.
Playa Hotels & Resorts (PLYA)
Trailing 12-Month Free Cash Flow Margin: 2.7%
Sporting a roster of beachfront properties, Playa Hotels & Resorts (NASDAQ:PLYA) is an owner, operator, and developer of all-inclusive resorts in prime vacation destinations.
Why Is PLYA Not Exciting?
- Weak revenue per room over the past two years indicates challenges in maintaining pricing power and occupancy rates
- Projected sales growth of 7.6% for the next 12 months suggests sluggish demand
- Low returns on capital reflect management’s struggle to allocate funds effectively
Playa Hotels & Resorts’s stock price of $13.48 implies a valuation ratio of 21.7x forward P/E. To fully understand why you should be careful with PLYA, check out our full research report (it’s free).
Stocks We Like More
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