While strong cash flow is a key indicator of stability, it doesn’t always translate to superior returns. Some cash-heavy businesses struggle with inefficient spending, slowing demand, or weak competitive positioning.
Luckily for you, we built StockStory to help you separate the good from the bad. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Wix (WIX)
Trailing 12-Month Free Cash Flow Margin: 30.1%
Powering over 263 million registered users worldwide with its AI-driven tools, Wix (NASDAQ: WIX) provides a cloud-based platform that helps individuals and businesses create and manage professional websites without requiring coding skills.
Why Are We Hesitant About WIX?
- Products, pricing, or go-to-market strategy may need some adjustments as its 13.7% average billings growth over the last year was weak
- Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
- Free cash flow margin is forecasted to shrink by 3.2 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
Wix’s stock price of $104.63 implies a valuation ratio of 2.6x forward price-to-sales. Check out our free in-depth research report to learn more about why WIX doesn’t pass our bar.
Cummins (CMI)
Trailing 12-Month Free Cash Flow Margin: 6.8%
With more than half of the heavy-duty truck market using its engines at one point, Cummins (NYSE: CMI) offers engines and power systems.
Why Are We Wary of CMI?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $510.55 per share, Cummins trades at 20.9x forward P/E. Read our free research report to see why you should think twice about including CMI in your portfolio.
Proto Labs (PRLB)
Trailing 12-Month Free Cash Flow Margin: 13.1%
Pioneering the concept of online quoting and manufacturing for custom prototypes and low-volume production parts, Proto Labs (NYSE: PRLB) offers injection molding, 3D printing, and sheet metal fabrication for manufacturers in various industries.
Why Do We Avoid PRLB?
- Annual revenue growth of 2.4% over the last two years was below our standards for the industrials sector
- Earnings per share have dipped by 8.7% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Negative returns on capital show that some of its growth strategies have backfired, and its falling returns suggest its earlier profit pools are drying up
Proto Labs is trading at $52.18 per share, or 32.5x forward P/E. Dive into our free research report to see why there are better opportunities than PRLB.
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