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

AMC Networks (AMCX)

Trailing 12-Month Free Cash Flow Margin: 12%

Originally the joint-venture of four cable television companies, AMC Networks (NASDAQ: AMCX) is a broadcaster producing a diverse range of television shows and movies.

Why Do We Avoid AMCX?

1. Annual sales declines of 4% for the past five years show its products and services struggled to connect with the market
2. Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 18.9% annually, worse than its revenue
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

At $7.56 per share, AMC Networks trades at 2.5x forward P/E. Dive into our free research report to see why there are better opportunities than AMCX.

Planet Fitness (PLNT)

Trailing 12-Month Free Cash Flow Margin: 16.3%

Founded by two brothers who purchased a struggling gym, Planet Fitness (NYSE: PLNT) is a gym franchise that caters to casual fitness users by providing a friendly and inclusive atmosphere.

Why Does PLNT Worry Us?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
2. Projected 3.5 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Planet Fitness is trading at $102.18 per share, or 32x forward P/E. Check out our free in-depth research report to learn more about why PLNT doesn’t pass our bar.

CoreCivic (CXW)

Trailing 12-Month Free Cash Flow Margin: 7.3%

Originally founded in 1983 as the first private prison company in the United States, CoreCivic (NYSE: CXW) operates correctional facilities, detention centers, and residential reentry programs for government agencies across the United States.

Why Are We Wary of CXW?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
2. Sluggish trends in its average available beds suggest customers aren’t adopting its solutions as quickly as the company hoped
3. Underwhelming 6.1% return on capital reflects management’s difficulties in finding profitable growth opportunities

CoreCivic’s stock price of $20.35 implies a valuation ratio of 16.4x forward P/E. If you’re considering CXW for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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