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.

Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.

Bright Horizons (BFAM)

Trailing 12-Month Free Cash Flow Margin: 8.7%

Founded in 1986, Bright Horizons (NYSE: BFAM) is a global provider of child care, early education, and workforce support solutions.

Why Do We Think BFAM Will Underperform?

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. Estimated sales growth of 7.6% for the next 12 months implies demand will slow from its two-year trend
3. Low returns on capital reflect management’s struggle to allocate funds effectively

Bright Horizons is trading at $119.24 per share, or 27.5x forward P/E. Check out our free in-depth research report to learn more about why BFAM doesn’t pass our bar.

Woodward (WWD)

Trailing 12-Month Free Cash Flow Margin: 8.1%

Initially designing controls for water wheels in the early 1900s, Woodward (NASDAQ: WWD) designs, services, and manufactures energy control products and optimization solutions.

Why Does WWD Worry Us?

1. Muted 4.9% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
2. Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 7.1% annually
3. 11.2 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

At $247.11 per share, Woodward trades at 34x forward P/E. If you’re considering WWD for your portfolio, see our FREE research report to learn more.

LifeStance Health Group (LFST)

Trailing 12-Month Free Cash Flow Margin: 9.1%

With over 6,600 licensed mental health professionals treating more than 880,000 patients annually, LifeStance Health (NASDAQ: LFST) provides outpatient mental health services through a network of clinicians offering psychiatric evaluations, psychological testing, and therapy across 33 states.

Why Are We Wary of LFST?

1. Smaller revenue base of $1.32 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
3. Negative returns on capital show that some of its growth strategies have backfired

LifeStance Health Group’s stock price of $5.49 implies a valuation ratio of 32.2x forward P/E. Dive into our free research report to see why there are better opportunities than LFST.

High-Quality Stocks for All Market Conditions

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