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.
Five9 (FIVN)
Trailing 12-Month Free Cash Flow Margin: 11.3%
Taking its name from the "five nines" (99.999%) standard for optimal service reliability in telecommunications, Five9 (NASDAQ: FIVN) provides cloud-based software that enables businesses to run their contact centers with tools for customer service, sales, and marketing across multiple communication channels.
Why Are We Cautious About FIVN?
- Products, pricing, or go-to-market strategy may need some adjustments as its 10.5% average billings growth over the last year was weak
- Estimated sales growth of 8.1% for the next 12 months implies demand will slow from its two-year trend
- Sky-high servicing costs result in an inferior gross margin of 55.4% that must be offset through increased usage
Five9’s stock price of $19.50 implies a valuation ratio of 1.4x forward price-to-sales. Check out our free in-depth research report to learn more about why FIVN doesn’t pass our bar.
AMETEK (AME)
Trailing 12-Month Free Cash Flow Margin: 22.9%
Started from its humble beginnings in motor repair, AMETEK (NYSE: AME) manufactures electronic devices used in industries like aerospace, power, and healthcare.
Why Does AME Fall Short?
- Annual revenue growth of 5.1% over the last two years was below our standards for the industrials sector
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
AMETEK is trading at $197.92 per share, or 25.4x forward P/E. If you’re considering AME for your portfolio, see our FREE research report to learn more.
BrightSpring Health Services (BTSG)
Trailing 12-Month Free Cash Flow Margin: 2.2%
Founded in 1974, BrightSpring Health Services (NASDAQ: BTSG) offers home health care, hospice, neuro-rehabilitation, and pharmacy services.
Why Are We Hesitant About BTSG?
- Earnings per share have contracted by 46% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
- Investment activity picked up over the last five years, pressuring its weak free cash flow margin of 1.3%
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $36.45 per share, BrightSpring Health Services trades at 29.2x forward P/E. Dive into our free research report to see why there are better opportunities than BTSG.
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