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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Coursera (COUR)
Trailing 12-Month Free Cash Flow Margin: 9.4%
Founded by two Stanford University computer science professors, Coursera (NYSE: COUR) is an online learning platform that offers courses, specializations, and degrees from top universities and organizations around the world.
Why Are We Cautious About COUR?
- Customer spending has dipped by 5.2% on average as it focused on growing its customers
- Estimated sales growth of 4.1% for the next 12 months implies demand will slow from its three-year trend
- Expensive marketing campaigns hurt its profitability and make us wonder what would happen if it let up on the gas
Coursera’s stock price of $8.93 implies a valuation ratio of 25.3x forward EV/EBITDA. If you’re considering COUR for your portfolio, see our FREE research report to learn more.
Herbalife (HLF)
Trailing 12-Month Free Cash Flow Margin: 3.3%
With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE: HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.
Why Does HLF Give Us Pause?
- Declining unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- Earnings per share have dipped by 21.7% annually over the past three years, which is concerning because stock prices follow EPS over the long term
Herbalife is trading at $7.70 per share, or 3.8x forward P/E. Check out our free in-depth research report to learn more about why HLF doesn’t pass our bar.
Amentum (AMTM)
Trailing 12-Month Free Cash Flow Margin: 1.1%
With operations spanning approximately 80 countries and a workforce of specialized engineers and technical experts, Amentum Holdings (NYSE: AMTM) provides advanced engineering and technology solutions to U.S. government agencies, allied governments, and commercial enterprises across defense, energy, and space sectors.
Why Does AMTM Fall Short?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.4% over the last three years was below our standards for the business services sector
- Estimated sales growth of 1.2% for the next 12 months implies demand will slow from its two-year trend
- Poor free cash flow margin of 1.6% for the last four years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
At $22.65 per share, Amentum trades at 10.2x forward P/E. To fully understand why you should be careful with AMTM, check out our full research report (it’s free).
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