A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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.
Henry Schein (HSIC)
Trailing 12-Month Free Cash Flow Margin: 4.2%
With a vast inventory of over 300,000 products stocked in distribution centers spanning more than 5.3 million square feet worldwide, Henry Schein (NASDAQ:HSIC) is a global distributor of healthcare products and services primarily to dental practices, medical offices, and other healthcare facilities.
Why Are We Hesitant About HSIC?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 3.9% annually
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $85.55 per share, Henry Schein trades at 15x forward P/E. If you’re considering HSIC for your portfolio, see our FREE research report to learn more.
Fortrea (FTRE)
Trailing 12-Month Free Cash Flow Margin: 7.3%
Spun off from Labcorp in 2023 to focus exclusively on clinical research services, Fortrea (NASDAQ:FTRE) is a contract research organization that helps pharmaceutical, biotech, and medical device companies develop and bring their products to market through clinical trials and support services.
Why Are We Bearish on FTRE?
- Sales tumbled by 3% annually over the last five years, showing market trends are working against it during this cycle
- Negative returns on capital show management lost money while trying to expand the business, and its falling returns suggest its earlier profit pools are drying up
Fortrea’s stock price of $20.04 implies a valuation ratio of 20.8x forward P/E. Read our free research report to see why you should think twice about including FTRE in your portfolio.
HP (HPQ)
Trailing 12-Month Free Cash Flow Margin: 6.6%
Born from the legendary Silicon Valley garage startup founded by Bill Hewlett and Dave Packard in 1939, HP (NYSE:HPQ) designs and sells personal computers, printers, and related technology products and services to consumers, businesses, and enterprises worldwide.
Why Should You Sell HPQ?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
- Earnings per share were flat over the last five years and fell short of the peer group average
HP is trading at $31.16 per share, or 10.8x forward P/E. Dive into our free research report to see why there are better opportunities than HPQ.
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