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.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. Keeping that in mind, here are three cash-producing companies to avoid and some better opportunities instead.
ADT (ADT)
Trailing 12-Month Free Cash Flow Margin: 16%
Founded in 1874 and headquartered in Boca Raton, Florida, ADT (NYSE: ADT) is a provider of security, automation, and smart home solutions, offering comprehensive services for home and business protection.
Why Does ADT Give Us Pause?
- Demand for its offerings was relatively low as its number of customers has underwhelmed
- Estimated sales growth of 3.7% for the next 12 months is soft and implies weaker demand
- ROIC of 5.7% reflects management’s challenges in identifying attractive investment opportunities
At $8.63 per share, ADT trades at 9.5x forward P/E. Check out our free in-depth research report to learn more about why ADT doesn’t pass our bar.
Bio-Techne (TECH)
Trailing 12-Month Free Cash Flow Margin: 21%
With a catalog of hundreds of thousands of specialized biological products used in laboratories worldwide, Bio-Techne (NASDAQ: TECH) develops and manufactures specialized reagents, instruments, and services that help researchers study biological processes and enable diagnostic testing and cell therapy development.
Why Do We Think TECH Will Underperform?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Subscale operations are evident in its revenue base of $1.22 billion, meaning it has fewer distribution channels than its larger rivals
- 12 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
Bio-Techne is trading at $59.48 per share, or 30.2x forward P/E. If you’re considering TECH for your portfolio, see our FREE research report to learn more.
Iridium (IRDM)
Trailing 12-Month Free Cash Flow Margin: 38%
With a constellation of 66 low-earth orbit satellites providing coverage to every inch of the planet, Iridium Communications (NASDAQ: IRDM) operates a global satellite network that provides voice and data services to customers in remote areas where traditional telecommunications are unavailable.
Why Is IRDM Not Exciting?
- Smaller revenue base of $857.5 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Projected sales growth of 4.1% for the next 12 months suggests sluggish demand
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Iridium’s stock price of $19.81 implies a valuation ratio of 17.6x forward P/E. Dive into our free research report to see why there are better opportunities than IRDM.
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