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. That said, here are three cash-producing companies to steer clear of and a few better alternatives.
Lattice Semiconductor (LSCC)
Trailing 12-Month Free Cash Flow Margin: 27.3%
A global leader in its category, Lattice Semiconductor (NASDAQ: LSCC) is a semiconductor designer specializing in customer-programmable chips that enhance CPU performance for intensive tasks such as machine learning.
Why Does LSCC Give Us Pause?
- Annual sales declines of 17.8% for the past two years show its products and services struggled to connect with the market during this cycle
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 15 percentage points
- Earnings per share lagged its peers over the last five years as they only grew by 5.2% annually
At $62.82 per share, Lattice Semiconductor trades at 50.6x forward P/E. Check out our free in-depth research report to learn more about why LSCC doesn’t pass our bar.
Genuine Parts (GPC)
Trailing 12-Month Free Cash Flow Margin: 1.1%
Largely targeting the professional customer, Genuine Parts (NYSE: GPC) sells auto and industrial parts such as batteries, belts, bearings, and machine fluids.
Why Is GPC Not Exciting?
- Sizable revenue base leads to growth challenges as its 4.7% annual revenue increases over the last six years fell short of other consumer retail companies
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Free cash flow margin shrank by 3.4 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
Genuine Parts is trading at $137.80 per share, or 16.9x forward P/E. If you’re considering GPC for your portfolio, see our FREE research report to learn more.
Haemonetics (HAE)
Trailing 12-Month Free Cash Flow Margin: 14.1%
With roots dating back to 1971 and a mission to improve blood-related healthcare, Haemonetics (NYSE: HAE) provides specialized medical devices and software for blood collection, processing, and management across plasma centers, blood banks, and hospitals.
Why Does HAE Fall Short?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Smaller revenue base of $1.35 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Sales are projected to tank by 2.9% over the next 12 months as demand evaporates
Haemonetics’s stock price of $53.90 implies a valuation ratio of 10.7x forward P/E. To fully understand why you should be careful with HAE, check out our full research report (it’s free).
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