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.

Okta (OKTA)

Trailing 12-Month Free Cash Flow Margin: 30.3%

Named after the meteorological measurement for cloud cover, Okta (NASDAQ: OKTA) provides cloud-based identity management solutions that help organizations securely connect their employees, partners, and customers to the right applications and services.

Why Are We Cautious About OKTA?

1. Customers had second thoughts about committing to its platform over the last year as its average billings growth of 10.9% underwhelmed
2. Estimated sales growth of 8.7% for the next 12 months implies demand will slow from its two-year trend
3. Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 2.9 percentage points over the next year

At $80.11 per share, Okta trades at 4.9x forward price-to-sales. If you’re considering OKTA for your portfolio, see our FREE research report to learn more.

Pangaea (PANL)

Trailing 12-Month Free Cash Flow Margin: 6.8%

Established in 1996, Pangaea Logistics (NASDAQ: PANL) specializes in global logistics and transportation services, focusing on the shipment of dry bulk cargoes.

Why Do We Think Twice About PANL?

1. Gross margin of 19.1% reflects its high production costs
2. Earnings per share fell by 42.3% annually over the last two years while its revenue grew, partly because it diluted shareholders
3. Low free cash flow margin of 0.6% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

Pangaea is trading at $6.56 per share, or 3.5x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why PANL doesn’t pass our bar.

Union Pacific (UNP)

Trailing 12-Month Free Cash Flow Margin: 11.4%

Part of the transcontinental railroad project, Union Pacific (NYSE: UNP) is a freight transportation company that operates a major railroad network.

Why Are We Out on UNP?

1. Underwhelming unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
2. Anticipated sales growth of 2.6% for the next year implies demand will be shaky
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.3 percentage points

Union Pacific’s stock price of $221.33 implies a valuation ratio of 17.9x forward P/E. Dive into our free research report to see why there are better opportunities than UNP.

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