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. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Accel Entertainment (ACEL)
Trailing 12-Month Free Cash Flow Margin: 5.2%
Established in Illinois, Accel Entertainment (NYSE: ACEL) is a provider of electronic gaming machines and interactive amusement terminals to bars and entertainment venues.
Why Are We Cautious About ACEL?
- Sluggish trends in its video gaming terminals sold suggest customers aren’t adopting its solutions as quickly as the company hoped
- Estimated sales growth of 6.9% for the next 12 months implies demand will slow from its two-year trend
- Poor free cash flow margin of 4.4% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Accel Entertainment is trading at $12.98 per share, or 14.1x forward P/E. If you’re considering ACEL for your portfolio, see our FREE research report to learn more.
Inspired (INSE)
Trailing 12-Month Free Cash Flow Margin: 6.3%
Specializing in digital casino gaming, Inspired (NASDAQ: INSE) is a provider of gaming hardware, virtual sports platforms, and server-based gaming systems.
Why Are We Hesitant About INSE?
- Muted 1.9% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
- Projected sales are flat for the next 12 months, implying demand will slow from its two-year trend
- Low free cash flow margin of 3.5% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $9.34 per share, Inspired trades at 2.5x forward EV-to-EBITDA. To fully understand why you should be careful with INSE, check out our full research report (it’s free).
FARO (FARO)
Trailing 12-Month Free Cash Flow Margin: 5.6%
Launched by two PhD students in a garage, FARO (NASDAQ: FARO) provides 3D measurement and imaging systems for the manufacturing, construction, engineering, and public safety industries.
Why Do We Think Twice About FARO?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.5% annually over the last five years
- Historical operating margin losses point to an inefficient cost structure
- Cash-burning history makes us doubt the long-term viability of its business model
FARO’s stock price of $44 implies a valuation ratio of 39.6x forward P/E. Dive into our free research report to see why there are better opportunities than FARO.
Stocks We Like More
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