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. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Coty (COTY)
Trailing 12-Month Free Cash Flow Margin: 5.1%
With a portfolio boasting many household brands, Coty (NYSE: COTY) is a beauty products powerhouse spanning cosmetics, fragrances, and skincare.
Why Should You Dump COTY?
- Organic sales performance over the past one years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 6.3 percentage points
- Earnings per share have contracted by 14.1% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
Coty is trading at $3.36 per share, or 7.5x forward P/E. Dive into our free research report to see why there are better opportunities than COTY.
Hudson Technologies (HDSN)
Trailing 12-Month Free Cash Flow Margin: 18.8%
Founded in 1991, Hudson Technologies (NASDAQ: HDSN) specializes in refrigerant services and solutions, providing refrigerant sales, reclamation, and recycling.
Why Does HDSN Worry Us?
- Annual sales declines of 9.9% for the past two years show its products and services struggled to connect with the market during this cycle
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $7.36 per share, Hudson Technologies trades at 11.2x forward EV-to-EBITDA. To fully understand why you should be careful with HDSN, check out our full research report (it’s free for active Edge members).
Surgery Partners (SGRY)
Trailing 12-Month Free Cash Flow Margin: 5.9%
With more than 180 locations across 33 states serving as alternatives to traditional hospital settings, Surgery Partners (NASDAQ: SGRY) operates a national network of outpatient surgical facilities including ambulatory surgery centers and short-stay surgical hospitals.
Why Does SGRY Fall Short?
- Weak unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Low free cash flow margin of 4.6% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Surgery Partners’s stock price of $17.03 implies a valuation ratio of 27.6x forward P/E. Read our free research report to see why you should think twice about including SGRY in your portfolio.
Stocks We Like More
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