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.
Luckily for you, we built StockStory to help you separate the good from the bad. That said, here are three cash-producing companies to steer clear of and a few better alternatives.
USANA (USNA)
Trailing 12-Month Free Cash Flow Margin: 2%
Going to market with a direct selling model rather than through traditional retailers, USANA Health Sciences (NYSE: USNA) manufactures and sells nutritional, personal care, and skincare products.
Why Are We Wary of USNA?
- Annual revenue declines of 4.2% over the last three years indicate problems with its market positioning
- Forecasted revenue decline of 1.9% for the upcoming 12 months implies demand will fall even further
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 20.9% annually, worse than its revenue
USANA’s stock price of $19.91 implies a valuation ratio of 11.3x forward P/E. To fully understand why you should be careful with USNA, check out our full research report (it’s free for active Edge members).
Rush Street Interactive (RSI)
Trailing 12-Month Free Cash Flow Margin: 11.4%
Specializing in online casino gaming and sports betting, Rush Street Interactive (NYSE: RSI) is an operator of digital gaming platforms.
Why Are We Out on RSI?
- Performance surrounding its monthly active users has lagged its peers
- Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 10.4% for the last two years
Rush Street Interactive is trading at $20.05 per share, or 40x forward P/E. Read our free research report to see why you should think twice about including RSI in your portfolio.
Intercontinental Exchange (ICE)
Trailing 12-Month Free Cash Flow Margin: 41.2%
Starting as an energy trading platform in 2000 before acquiring the iconic New York Stock Exchange in 2013, Intercontinental Exchange (NYSE: ICE) operates global financial exchanges, clearing houses, and provides data services and mortgage technology solutions to financial institutions and corporations.
Why Are We Hesitant About ICE?
- Performance over the past five years shows its incremental sales were less profitable, as its 9.3% annual earnings per share growth trailed its revenue gains
At $162.66 per share, Intercontinental Exchange trades at 22.6x forward P/E. Dive into our free research report to see why there are better opportunities than ICE.
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