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.
Yext (YEXT)
Trailing 12-Month Free Cash Flow Margin: 11.4%
Founded in 2006 by Howard Lerman, Yext (NYSE: YEXT) offers software as a service that helps their clients manage and monitor their online listings and customer reviews across all relevant databases, from Google Maps to Alexa or Siri.
Why Do We Avoid YEXT?
- ARR growth averaged a weak 4% over the last year, suggesting that competition is pulling some attention away from its software
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 6.2 percentage points
Yext is trading at $6.38 per share, or 1.9x forward price-to-sales. Check out our free in-depth research report to learn more about why YEXT doesn’t pass our bar.
Flowserve (FLS)
Trailing 12-Month Free Cash Flow Margin: 5.1%
Manufacturing the largest pump ever built for nuclear power generation, Flowserve (NYSE: FLS) manufactures and sells flow control equipment for various industries.
Why Does FLS Fall Short?
- New orders were hard to come by as its average backlog growth of 3.6% over the past two years underwhelmed
- Estimated sales growth of 5.7% for the next 12 months implies demand will slow from its two-year trend
- Free cash flow margin dropped by 1.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Flowserve’s stock price of $46.69 implies a valuation ratio of 14.5x forward P/E. Dive into our free research report to see why there are better opportunities than FLS.
Cisco (CSCO)
Trailing 12-Month Free Cash Flow Margin: 23.6%
Founded in 1984 by a husband and wife team who wanted computers at Stanford to talk to computers at UC Berkeley, Cisco (NASDAQ: CSCO) designs and sells networking equipment, security solutions, and collaboration tools that help businesses connect their systems and secure their digital operations.
Why Should You Sell CSCO?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- 6.3 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
- Eroding returns on capital suggest its historical profit centers are aging
At $59.50 per share, Cisco trades at 15.8x forward P/E. If you’re considering CSCO for your portfolio, see our FREE research report to learn more.
Stocks We Like More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.
