A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.

Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here are three cash-producing companies to avoid and some better opportunities instead.

LiveRamp (RAMP)

Trailing 12-Month Free Cash Flow Margin: 19.2%

Serving as the digital middleman in an increasingly privacy-conscious world, LiveRamp (NYSE: RAMP) provides technology that helps companies securely share and connect their customer data with trusted partners while maintaining privacy compliance.

Why Are We Cautious About RAMP?

1. ARR growth averaged a weak 8.9% over the last year, suggesting that competition is pulling some attention away from its software
2. Estimated sales growth of 7.8% for the next 12 months implies demand will slow from its two-year trend
3. Operating margin improvement of 1.8 percentage points over the last year demonstrates its ability to scale efficiently

At $27.89 per share, LiveRamp trades at 2.3x forward price-to-sales. Check out our free in-depth research report to learn more about why RAMP doesn’t pass our bar.

Carrier Global (CARR)

Trailing 12-Month Free Cash Flow Margin: 5.1%

Founded by the inventor of air conditioning, Carrier Global (NYSE: CARR) manufactures heating, ventilation, air conditioning, and refrigeration products.

Why Do We Think CARR Will Underperform?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Estimated sales growth of 1.4% for the next 12 months implies demand will slow from its two-year trend
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Carrier Global’s stock price of $58.92 implies a valuation ratio of 19.4x forward P/E. Dive into our free research report to see why there are better opportunities than CARR.

Corcept (CORT)

Trailing 12-Month Free Cash Flow Margin: 25.2%

Focusing on the powerful stress hormone that affects everything from metabolism to immune function, Corcept Therapeutics (NASDAQ: CORT) develops and markets medications that modulate cortisol to treat endocrine disorders, cancer, and neurological diseases.

Why Are We Wary of CORT?

1. Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 16.9 percentage points
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 2.8% annually
3. Eroding returns on capital suggest its historical profit centers are aging

Corcept is trading at $71.61 per share, or 72.7x forward P/E. To fully understand why you should be careful with CORT, check out our full research report (it’s free for active Edge members).

Stocks We Like More

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