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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. That said, here are three cash-producing companies to avoid and some better opportunities instead.
Qorvo (QRVO)
Trailing 12-Month Free Cash Flow Margin: 16.1%
Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.
Why Do We Pass on QRVO?
- 2.3% annual revenue growth over the last five years was slower than its semiconductor peers
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 22.3 percentage points
- 11.7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Qorvo is trading at $82 per share, or 14.1x forward P/E. Check out our free in-depth research report to learn more about why QRVO doesn’t pass our bar.
PlayStudios (MYPS)
Trailing 12-Month Free Cash Flow Margin: 15.1%
Founded by a team of former gaming industry executives, PlayStudios (NASDAQ: MYPS) offers free-to-play digital casino games.
Why Does MYPS Give Us Pause?
- Products and services have few die-hard fans as sales have declined by 4.4% annually over the last two years
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Negative returns on capital show management lost money while trying to expand the business
PlayStudios’s stock price of $1.16 implies a valuation ratio of 2.9x forward EV-to-EBITDA. If you’re considering MYPS for your portfolio, see our FREE research report to learn more.
TaskUs (TASK)
Trailing 12-Month Free Cash Flow Margin: 10%
Starting as a virtual assistant service in 2008 before evolving into a global digital services provider, TaskUs (NASDAQ: TASK) provides outsourced digital services including customer experience management, content moderation, and AI data services to innovative technology companies.
Why Are We Wary of TASK?
- 1.8% annual revenue growth over the last two years was slower than its business services peers
- Earnings per share have contracted by 4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- ROIC of 5.4% reflects management’s challenges in identifying attractive investment opportunities
At $17.08 per share, TaskUs trades at 12.3x forward P/E. Dive into our free research report to see why there are better opportunities than TASK.
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