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. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
MGM Resorts (MGM)
Trailing 12-Month Free Cash Flow Margin: 8.3%
Operating several properties on the Las Vegas Strip, MGM Resorts (NYSE: MGM) is a global hospitality and entertainment company known for its resorts and casinos.
Why Is MGM Risky?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 4.2% over the last two years was below our standards for the consumer discretionary sector
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $35.50 per share, MGM Resorts trades at 17.1x forward P/E. Read our free research report to see why you should think twice about including MGM in your portfolio.
Omnicell (OMCL)
Trailing 12-Month Free Cash Flow Margin: 7.3%
Driven by the vision of an "Autonomous Pharmacy" with zero medication errors, Omnicell (NASDAQ: OMCL) provides medication management automation and adherence tools that help healthcare systems and pharmacies reduce errors and improve efficiency.
Why Should You Dump OMCL?
- Sales trends were unexciting over the last two years as its 1.6% annual growth was below the typical healthcare company
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 9.2 percentage points
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 8.6% annually
Omnicell’s stock price of $41.32 implies a valuation ratio of 23x forward P/E. If you’re considering OMCL for your portfolio, see our FREE research report to learn more.
Hologic (HOLX)
Trailing 12-Month Free Cash Flow Margin: 23.2%
As a pioneer in 3D mammography technology that has revolutionized breast cancer detection, Hologic (NASDAQ: HOLX) develops and manufactures diagnostic products, medical imaging systems, and surgical devices focused primarily on women's health and wellness.
Why Do We Pass on HOLX?
- Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
- Adjusted operating margin declined by 17.7 percentage points over the last five years as its sales cratered
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 7.3% annually, worse than its revenue
Hologic is trading at $75.37 per share, or 16.7x forward P/E. Check out our free in-depth research report to learn more about why HOLX doesn’t pass our bar.
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