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.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. Keeping that in mind, here are three cash-producing companies to steer clear of and a few better alternatives.
The Marzetti Company (MZTI)
Trailing 12-Month Free Cash Flow Margin: 10.7%
Known for its frozen garlic bread and Parkerhouse rolls, The Marzetti Company (NASDAQ: MZTI) sells bread, dressing, and dips to the retail and food service channels.
Why Are We Wary of MZTI?
- 4.4% annual revenue growth over the last three years was slower than its consumer staples peers
- Smaller revenue base of $1.91 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Estimated sales growth of 1.5% for the next 12 months implies demand will slow from its three-year trend
At $163.06 per share, The Marzetti Company trades at 23.2x forward P/E. To fully understand why you should be careful with MZTI, check out our full research report (it’s free for active Edge members).
Array (ARRY)
Trailing 12-Month Free Cash Flow Margin: 10.8%
Going public in October 2020, Array (NASDAQ: ARRY) is a global manufacturer of ground-mounting tracking systems for utility and distributed generation solar energy projects.
Why Should You Dump ARRY?
- Weak unit sales over the past two years suggest it might have to lower prices to accelerate growth
- Earnings per share have dipped by 15.7% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Array is trading at $8.90 per share, or 11.6x forward P/E. Read our free research report to see why you should think twice about including ARRY in your portfolio.
Northrop Grumman (NOC)
Trailing 12-Month Free Cash Flow Margin: 4.5%
Responsible for the development of the first stealth bomber, Northrop Grumman (NYSE: NOC) specializes in providing aerospace, defense, and security solutions for various industry applications.
Why Do We Avoid NOC?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Efficiency has decreased over the last five years as its operating margin fell by 5.7 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
Northrop Grumman’s stock price of $595 implies a valuation ratio of 21.5x forward P/E. If you’re considering NOC for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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