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.
RTX (RTX)
Trailing 12-Month Free Cash Flow Margin: 6.1%
Originally focused on refrigeration technology, Raytheon (NSYE:RTX) provides a a variety of products and services to the aerospace and defense industries.
Why Is RTX Not Exciting?
- Estimated sales growth of 5.2% for the next 12 months implies demand will slow from its two-year trend
- Operating margin of 7.5% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
RTX’s stock price of $176.52 implies a valuation ratio of 27.6x forward P/E. Check out our free in-depth research report to learn more about why RTX doesn’t pass our bar.
LeMaitre (LMAT)
Trailing 12-Month Free Cash Flow Margin: 22.3%
Founded in 1983 and named after a pioneering vascular surgeon, LeMaitre Vascular (NASDAQGM:LMAT) develops and manufactures specialized medical devices used by vascular surgeons to treat peripheral vascular disease and other circulatory conditions.
Why Does LMAT Give Us Pause?
- Revenue base of $234.6 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 2.3 percentage points
- Free cash flow margin dropped by 4.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
LeMaitre is trading at $88.55 per share, or 36.5x forward P/E. To fully understand why you should be careful with LMAT, check out our full research report (it’s free for active Edge members).
ASGN (ASGN)
Trailing 12-Month Free Cash Flow Margin: 7.1%
Evolving from its roots in IT staffing to become a high-end technology consulting powerhouse, ASGN (NYSE: ASGN) provides specialized IT consulting services and staffing solutions to Fortune 1000 companies and U.S. federal government agencies.
Why Should You Dump ASGN?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.2% annually over the last two years
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Earnings per share were flat over the last five years while its revenue grew, showing its incremental sales were less profitable
At $43.83 per share, ASGN trades at 9.2x forward P/E. Dive into our free research report to see why there are better opportunities than ASGN.
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