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. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Palo Alto Networks (PANW)
Trailing 12-Month Free Cash Flow Margin: 33.8%
Founded in 2005 by cybersecurity engineer Nir Zuk, Palo Alto Networks (NASDAQ: PANW) makes hardware and software cybersecurity products that protect companies from cyberattacks, breaches, and malware threats.
Why Do We Think Twice About PANW?
- Sales trends were unexciting over the last three years as its 19.7% annual growth was below the typical software company
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 3% underwhelmed
Palo Alto Networks is trading at $197.10 per share, or 13.8x forward price-to-sales. Check out our free in-depth research report to learn more about why PANW doesn’t pass our bar.
Walmart (WMT)
Trailing 12-Month Free Cash Flow Margin: 2%
Known for its large-format Supercenters, Walmart (NYSE: WMT) is a retail pioneer that serves a budget-conscious consumer who is looking for a wide range of products under one roof.
Why Does WMT Fall Short?
- Sizable revenue base leads to growth challenges as its 4.8% annual revenue increases over the last six years fell short of other consumer retail companies
- Gross margin of 24.7% is an output of its commoditized inventory
- Incremental sales over the last six years were much less profitable as its earnings per share fell by 10.9% annually while its revenue grew
At $97.70 per share, Walmart trades at 36.5x forward P/E. If you’re considering WMT for your portfolio, see our FREE research report to learn more.
Albany (AIN)
Trailing 12-Month Free Cash Flow Margin: 11.8%
Founded in 1895, Albany (NYSE: AIN) is a global textiles and materials processing company, specializing in machine clothing for paper mills and engineered composite structures for aerospace and other industries.
Why Are We Out on AIN?
- Sales trends were unexciting over the last five years as its 3% annual growth was below the typical industrials company
- Efficiency has decreased over the last five years as its operating margin fell by 9 percentage points
- Earnings per share fell by 6.3% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
Albany’s stock price of $71.87 implies a valuation ratio of 11.5x forward EV-to-EBITDA. To fully understand why you should be careful with AIN, check out our full research report (it’s free).
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