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.
Chegg (CHGG)
Trailing 12-Month Free Cash Flow Margin: 7.2%
Started as a physical textbook rental service, Chegg (NYSE: CHGG) is now a digital platform addressing student pain points by providing study and academic assistance.
Why Are We Out on CHGG?
- Value proposition isn’t resonating strongly as its services subscribers averaged 13.4% drops over the last two years
- EBITDA profits fell over the last few years as its sales dropped and it struggled to adjust its fixed costs
- Sales were less profitable over the last three years as its earnings per share fell by 30.8% annually, worse than its revenue declines
Chegg is trading at $1.25 per share, or 2.1x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than CHGG.
Figs (FIGS)
Trailing 12-Month Free Cash Flow Margin: 10.9%
Rising to fame via TikTok and founded in 2013 by Heather Hasson and Trina Spear, Figs (NYSE: FIGS) is a healthcare apparel company known for its stylish approach to medical attire and uniforms.
Why Are We Hesitant About FIGS?
- Number of active customers has disappointed over the past two years, indicating weak demand for its offerings
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
- Negative returns on capital show management lost money while trying to expand the business
At $5.89 per share, Figs trades at 75.9x forward P/E. Read our free research report to see why you should think twice about including FIGS in your portfolio.
WillScot Mobile Mini (WSC)
Trailing 12-Month Free Cash Flow Margin: 18.9%
Originally focusing on mobile offices for construction sites, WillScot (NASDAQ: WSC) provides ready-to-use temporary spaces, largely for longer-term lease.
Why Is WSC Not Exciting?
- Annual revenue growth of 2.4% over the last two years was below our standards for the industrials sector
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 3.4% annually while its revenue grew
- 5 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
WillScot Mobile Mini’s stock price of $27.47 implies a valuation ratio of 16.8x forward P/E. If you’re considering WSC for your portfolio, see our FREE research report to learn more.
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