3 Cash-Producing Stocks We Find Risky

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. Keeping that in mind, here are three cash-producing companies to avoid and some better opportunities instead.

Travel + Leisure (TNL)

Trailing 12-Month Free Cash Flow Margin: 13%

Formerly known as Wyndham Destinations, Travel + Leisure (NYSE:TNL) is a global vacation company that provides travelers with vacation ownership, exchange, and travel services.

Why Should You Sell TNL?

1. Performance surrounding its tours conducted has lagged its peers
2. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
3. High net-debt-to-EBITDA ratio of 8× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Travel + Leisure is trading at $73.11 per share, or 10.1x forward P/E. To fully understand why you should be careful with TNL, check out our full research report (it’s free).

Harley-Davidson (HOG)

Trailing 12-Month Free Cash Flow Margin: 9.3%

Founded in 1903, Harley-Davidson (NYSE:HOG) is an American motorcycle manufacturer known for its heavyweight motorcycles designed for cruising on highways.

Why Are We Out on HOG?

1. Sluggish trends in its motorcycles sold suggest customers aren’t adopting its solutions as quickly as the company hoped
2. Projected 4.4 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Harley-Davidson’s stock price of $17.92 implies a valuation ratio of 64.5x forward P/E. Dive into our free research report to see why there are better opportunities than HOG.

Centene (CNC)

Trailing 12-Month Free Cash Flow Margin: 2.2%

Serving nearly 1 in 15 Americans through its government healthcare programs, Centene (NYSE:CNC) is a healthcare company that manages government-sponsored health insurance programs like Medicaid and Medicare for low-income and complex-needs populations.

Why Does CNC Fall Short?

1. Underwhelming customer growth over the past two years shows the company faced challenges in winning new contracts
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 16.3% annually
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

At $44.44 per share, Centene trades at 14.8x forward P/E. Check out our free in-depth research report to learn more about why CNC doesn’t pass our bar.

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