A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
ZoomInfo (ZI)
Trailing 12-Month Free Cash Flow Margin: 37.1%
Founded in 2007 as DiscoveryOrg and renamed after a merger in 2019, ZoomInfo (NASDAQ: ZI) is a software as a service product that provides sales departments with access to a database of prospective clients.
Why Are We Wary of ZI?
- Flat billings over the last year suggest it may need to improve its products, pricing, or go-to-market strategy to reinvigorate demand
- Drawn-out sales process reflects its software’s integration hurdles with enterprise clients, restraining customer growth potential
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 10.3 percentage points
At $10.28 per share, ZoomInfo trades at 2.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ZI.
Texas Instruments (TXN)
Trailing 12-Month Free Cash Flow Margin: 9%
Headquartered in Dallas, Texas since the 1950s, Texas Instruments (NASDAQ: TXN) is the world’s largest producer of analog semiconductors.
Why Is TXN Not Exciting?
- Annual sales declines of 5.9% for the past two years show its products and services struggled to connect with the market during this cycle
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 11.4 percentage points
- 29.7 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
Texas Instruments’s stock price of $187.25 implies a valuation ratio of 30.8x forward P/E. If you’re considering TXN for your portfolio, see our FREE research report to learn more.
CarGurus (CARG)
Trailing 12-Month Free Cash Flow Margin: 24.9%
Bringing transparency to a sometimes opaque process, CarGurus (NASDAQ: CARG) is a digital marketplace where auto dealers can connect with potential customers and where car buyers can browse, purchase, and obtain financing.
Why Do We Think Twice About CARG?
- Products and services have few die-hard fans as sales have declined by 15.1% annually over the last three years
- May need to improve its platform and marketing strategy as its 1.7% average growth in paying dealers underwhelmed
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.3%
CarGurus is trading at $29.50 per share, or 9.3x forward EV/EBITDA. Check out our free in-depth research report to learn more about why CARG doesn’t pass our bar.
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