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 that don’t make the cut and some better opportunities instead.
8x8 (EGHT)
Trailing 12-Month Free Cash Flow Margin: 6%
Named after its founding year (1987) with "8x8" representing binary code for communications, 8x8 (NASDAQ:EGHT) provides cloud-based contact center and unified communications solutions that enable businesses to manage customer interactions and internal communications through a single platform.
Why Is EGHT Risky?
- Offerings struggled to generate meaningful interest as its average billings growth of 1.3% over the last year did not impress
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- Extended payback periods on sales investments suggest the company’s platform isn’t resonating enough to drive efficient sales conversions
8x8 is trading at $2.15 per share, or 0.4x forward price-to-sales. Read our free research report to see why you should think twice about including EGHT in your portfolio.
ON24 (ONTF)
Trailing 12-Month Free Cash Flow Margin: 3.2%
Powering over 1,700 companies' virtual marketing efforts since 1998, ON24 (NYSE:ONTF) provides a cloud-based platform that enables businesses to create interactive digital experiences and capture actionable data from customer engagement.
Why Should You Sell ONTF?
- Billings have dropped by 3.3% over the last year, suggesting it might have to lower prices to stimulate growth
- Projected sales decline of 4.6% over the next 12 months indicates demand will continue deteriorating
- Suboptimal cost structure is highlighted by its history of operating margin losses
ON24’s stock price of $5.76 implies a valuation ratio of 1.8x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ONTF.
Accenture (ACN)
Trailing 12-Month Free Cash Flow Margin: 15%
With a workforce of approximately 774,000 people serving clients in more than 120 countries, Accenture (NYSE:ACN) is a professional services firm that helps organizations transform their businesses through consulting, technology, operations, and digital services.
Why Are We Cautious About ACN?
- Annual sales growth of 3.8% over the last two years lagged behind its business services peers as its large revenue base made it difficult to generate incremental demand
- Free cash flow margin shrank by 4.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $239.88 per share, Accenture trades at 18x forward P/E. If you’re considering ACN for your portfolio, see our FREE research report to learn more.
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