3 Cash-Producing Stocks That Fall Short

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. That said, here are three cash-producing companies to avoid and some better opportunities instead.

Arhaus (ARHS)

Trailing 12-Month Free Cash Flow Margin: 4.3%

With an aesthetic that features natural materials such as reclaimed wood, Arhaus (NASDAQ:ARHS) is a high-end furniture retailer that sells everything from sofas to rugs to bookcases.

Why Does ARHS Give Us Pause?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Subscale operations are evident in its revenue base of $1.34 billion, meaning it has fewer distribution channels than its larger rivals
3. Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term

At $9.79 per share, Arhaus trades at 22.6x forward P/E. Dive into our free research report to see why there are better opportunities than ARHS.

Flowers Foods (FLO)

Trailing 12-Month Free Cash Flow Margin: 7.5%

With Wonder Bread as its premier brand, Flower Foods (NYSE:FLO) is a packaged foods company that focuses on bakery products such as breads, buns, and cakes.

Why Are We Wary of FLO?

1. Shrinking unit sales over the past two years imply it may need to invest in product improvements to get back on track
2. Subpar operating margin of 5.6% constrains its ability to invest in process improvements or effectively respond to new competitive threats
3. Earnings per share have dipped by 1.4% annually over the past three years, which is concerning because stock prices follow EPS over the long term

Flowers Foods’s stock price of $12.62 implies a valuation ratio of 11.9x forward P/E. To fully understand why you should be careful with FLO, check out our full research report (it’s free for active Edge members).

Wyndham (WH)

Trailing 12-Month Free Cash Flow Margin: 20%

Established in 1981, Wyndham (NYSE:WH) is a global hotel franchising company with over 9,000 hotels across nearly 95 countries on six continents.

Why Does WH Worry Us?

1. Revenue per room has underperformed over the past two years, suggesting it may need to develop new facilities
2. Estimated sales growth of 3.7% for the next 12 months is soft and implies weaker demand
3. Low returns on capital reflect management’s struggle to allocate funds effectively

Wyndham is trading at $76.28 per share, or 15.6x forward P/E. Read our free research report to see why you should think twice about including WH in your portfolio.

Stocks We Like More

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