Generating cash is essential for any business, but not all cash-rich companies are great investments. Some produce plenty of cash but fail to allocate it effectively, leading to missed opportunities.

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 to avoid and some better opportunities instead.

Dropbox (DBX)

Trailing 12-Month Free Cash Flow Margin: 35.2%

Originally named after the founders' tendency to "drop" files into a shared folder, Dropbox (NASDAQ: DBX) provides a content collaboration platform that helps individuals and teams store, organize, share, and work on files from anywhere.

Why Are We Hesitant About DBX?

1. Billings didn’t grow over the last year, suggesting the company struggled to sell its software and might have to lower prices to stimulate growth
2. Estimated sales decline of 2% for the next 12 months implies a challenging demand environment
3. Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 4 percentage points

At $27.68 per share, Dropbox trades at 3.1x forward price-to-sales. To fully understand why you should be careful with DBX, check out our full research report (it’s free).

ADT (ADT)

Trailing 12-Month Free Cash Flow Margin: 16%

Founded in 1874 and headquartered in Boca Raton, Florida, ADT (NYSE: ADT) is a provider of security, automation, and smart home solutions, offering comprehensive services for home and business protection.

Why Do We Think Twice About ADT?

1. Demand for its offerings was relatively low as its number of customers has underwhelmed
2. Projected sales growth of 3.6% for the next 12 months suggests sluggish demand
3. Underwhelming 5.7% return on capital reflects management’s difficulties in finding profitable growth opportunities

ADT’s stock price of $8.70 implies a valuation ratio of 9.9x forward P/E. If you’re considering ADT for your portfolio, see our FREE research report to learn more.

Atkore (ATKR)

Trailing 12-Month Free Cash Flow Margin: 9.1%

Protecting the things that power our world, Atkore (NYSE: ATKR) designs and manufactures electrical safety products.

Why Should You Dump ATKR?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. 5.8 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
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Atkore is trading at $57.86 per share, or 9.4x forward P/E. Dive into our free research report to see why there are better opportunities than ATKR.

Stocks We Like More

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