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.
Sonos (SONO)
Trailing 12-Month Free Cash Flow Margin: 4%
A pioneer in connected home audio systems, Sonos (NASDAQ: SONO) offers a range of premium wireless speakers and sound systems.
Why Should You Dump SONO?
- Annual revenue declines of 8% over the last two years indicate problems with its market positioning
- Persistent operating margin losses suggest the business manages its expenses poorly
- Push for growth has led to negative returns on capital, signaling value destruction
Sonos is trading at $16.17 per share, or 22.6x forward P/E. If you’re considering SONO for your portfolio, see our FREE research report to learn more.
Carnival (CCL)
Trailing 12-Month Free Cash Flow Margin: 11.1%
Boasting outrageous amenities like a planetarium on board its ships, Carnival (NYSE: CCL) is one of the world's largest leisure travel companies and a prominent player in the cruise industry.
Why Is CCL Not Exciting?
- Sluggish trends in its passenger cruise days suggest customers aren’t adopting its solutions as quickly as the company hoped
- Estimated sales growth of 5.1% for the next 12 months implies demand will slow from its two-year trend
- Negative returns on capital show that some of its growth strategies have backfired
At $28.40 per share, Carnival trades at 11.9x forward P/E. Read our free research report to see why you should think twice about including CCL in your portfolio.
Kadant (KAI)
Trailing 12-Month Free Cash Flow Margin: 14.7%
Headquartered in Massachusetts, Kadant (NYSE: KAI) is a global supplier of high-value, critical components and engineered systems used in process industries worldwide.
Why Are We Cautious About KAI?
- 4.9% annual revenue growth over the last two years was slower than its industrials peers
- Flat earnings per share over the last two years underperformed the sector average
- Free cash flow margin shrank by 2.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Kadant’s stock price of $302 implies a valuation ratio of 32x forward P/E. Check out our free in-depth research report to learn more about why KAI doesn’t pass our bar.
Stocks We Like More
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