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.
Heartland Express (HTLD)
Trailing 12-Month Free Cash Flow Margin: 6.3%
Founded by the son of a trucker, Heartland Express (NASDAQ: HTLD) offers full-truckload deliveries across the United States and Mexico.
Why Is HTLD Risky?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 14.2% annually over the last two years
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 12.7 percentage points
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Heartland Express’s stock price of $8.48 implies a valuation ratio of 7.8x forward EV-to-EBITDA. To fully understand why you should be careful with HTLD, check out our full research report (it’s free).
Proto Labs (PRLB)
Trailing 12-Month Free Cash Flow Margin: 13%
Pioneering the concept of online quoting and manufacturing for custom prototypes and low-volume production parts, Proto Labs (NYSE: PRLB) offers injection molding, 3D printing, and sheet metal fabrication for manufacturers in various industries.
Why Do We Think PRLB Will Underperform?
- Muted 2.4% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Efficiency has decreased over the last five years as its operating margin fell by 7.6 percentage points
- Earnings per share have dipped by 9.3% annually over the past five years, which is concerning because stock prices follow EPS over the long term
Proto Labs is trading at $49.64 per share, or 33.5x forward P/E. If you’re considering PRLB for your portfolio, see our FREE research report to learn more.
MarketAxess (MKTX)
Trailing 12-Month Free Cash Flow Margin: 38.9%
Pioneering the shift from phone-based to electronic bond trading since 2000, MarketAxess (NASDAQ: MKTX) operates electronic trading platforms that enable institutional investors and broker-dealers to efficiently trade fixed-income securities like corporate and government bonds.
Why Are We Hesitant About MKTX?
- Muted 6.4% annual revenue growth over the last five years shows its demand lagged behind its financials peers
- Annual earnings per share growth of 1.7% underperformed its revenue over the last five years, showing its incremental sales were less profitable
At $178.21 per share, MarketAxess trades at 22.3x forward P/E. Read our free research report to see why you should think twice about including MKTX in your portfolio.
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