A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Connection (CNXN)
Trailing 12-Month Free Cash Flow Margin: 1.9%
Starting as a small computer products seller in 1982 and evolving into a Fortune 1000 company, Connection (NASDAQ: CNXN) is a technology solutions provider that helps businesses and government agencies design, purchase, implement, and manage their IT infrastructure and systems.
Why Is CNXN Risky?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.5% annually
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Connection’s stock price of $56.53 implies a valuation ratio of 15.6x forward P/E. Read our free research report to see why you should think twice about including CNXN in your portfolio.
UL Solutions (ULS)
Trailing 12-Month Free Cash Flow Margin: 13%
Founded in 1894 as a response to the growing dangers of electricity in American homes and businesses, UL Solutions (NYSE: ULS) provides testing, inspection, and certification services that help companies ensure their products meet safety, security, and sustainability standards.
Why Does ULS Fall Short?
- Muted 4.3% annual revenue growth over the last three years shows its demand lagged behind its business services peers
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 9.3% annually
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
UL Solutions is trading at $87.48 per share, or 43.6x forward P/E. Check out our free in-depth research report to learn more about why ULS doesn’t pass our bar.
Western Union (WU)
Trailing 12-Month Free Cash Flow Margin: 9.8%
With a history dating back to 1851 when it began as a telegraph company, Western Union (NYSE: WU) is a global money transfer service that enables consumers and businesses to send funds across borders and currencies, typically within minutes.
Why Are We Out on WU?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 3.4% annually over the last five years
- Earnings per share have contracted by 1.1% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
At $8.75 per share, Western Union trades at 5x forward P/E. If you’re considering WU for your portfolio, see our FREE research report to learn more.
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