3 Cash-Producing Stocks in the Doghouse

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. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.

Hilton Grand Vacations (HGV)

Trailing 12-Month Free Cash Flow Margin: 28.1%

Spun off from Hilton Worldwide in 2017, Hilton Grand Vacations (NYSE:HGV) is a global timeshare company that provides travel experiences for its customers through its timeshare resorts and club membership programs.

Why Does HGV Worry Us?

1. Sales trends were unexciting over the last two years as its 11.6% annual growth was below the typical consumer discretionary company
2. Underwhelming 3.1% return on capital reflects management’s difficulties in finding profitable growth opportunities
3. 11× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

Hilton Grand Vacations’s stock price of $39.03 implies a valuation ratio of 10.5x forward P/E. Check out our free in-depth research report to learn more about why HGV doesn’t pass our bar.

CTS (CTS)

Trailing 12-Month Free Cash Flow Margin: 15%

With roots dating back to 1896 and a global manufacturing footprint, CTS (NYSE:CTS) designs and manufactures sensors, connectivity components, and actuators for aerospace, defense, industrial, medical, and transportation markets.

Why Do We Avoid CTS?

1. Sales tumbled by 6.1% annually over the last two years, showing market trends are working against its favor during this cycle
2. Revenue base of $515.8 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. Earnings per share have contracted by 5.8% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance

CTS is trading at $41.41 per share, or 19.1x forward P/E. If you’re considering CTS for your portfolio, see our FREE research report to learn more.

Tri Pointe Homes (TPH)

Trailing 12-Month Free Cash Flow Margin: 11.5%

Established in 2009 in California, Tri Pointe Homes (NYSE:TPH) is a United States homebuilder recognized for its innovative and sustainable approach to creating premium, life-enhancing homes.

Why Should You Sell TPH?

1. Backlog has dropped by 6.9% on average over the past two years, suggesting it’s losing orders as competition picks up
2. Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
3. Free cash flow margin shrank by 8.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

At $30.40 per share, Tri Pointe Homes trades at 9.8x forward P/E. Read our free research report to see why you should think twice about including TPH in your portfolio.

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