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. That said, here are three cash-producing companies to avoid and some better opportunities instead.

Pegasystems (PEGA)

Trailing 12-Month Free Cash Flow Margin: 24.9%

With a "Center-out Business Architecture" approach that transcends organizational silos, Pegasystems (NASDAQ: PEGA) develops software that helps organizations automate workflows and use artificial intelligence to improve customer experiences and business processes.

Why Are We Hesitant About PEGA?

1. 11.7% annual revenue growth over the last five years was slower than its software peers
2. Estimated sales growth of 4.2% for the next 12 months implies demand will slow from its two-year trend
3. Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue

Pegasystems is trading at $59.30 per share, or 6x forward price-to-sales. Read our free research report to see why you should think twice about including PEGA in your portfolio.

Charter (CHTR)

Trailing 12-Month Free Cash Flow Margin: 9.5%

Operating as Spectrum, Charter (NASDAQ: CHTR) is a leading telecommunications company offering cable television, high-speed internet, and voice services across the United States.

Why Does CHTR Give Us Pause?

1. Number of internet subscribers has disappointed over the past two years, indicating weak demand for its offerings
2. Projected sales for the next 12 months are flat and suggest demand will be subdued
3. ROIC of 9.9% reflects management’s challenges in identifying attractive investment opportunities

At $217.28 per share, Charter trades at 5.2x forward P/E. Check out our free in-depth research report to learn more about why CHTR doesn’t pass our bar.

C.H. Robinson Worldwide (CHRW)

Trailing 12-Month Free Cash Flow Margin: 4.9%

Engaging in contracts with tens of thousands of transportation companies, C.H. Robinson (NASDAQ: CHRW) offers freight transportation and logistics services.

Why Does CHRW Worry Us?

1. Annual sales declines of 5.4% for the past two years show its products and services struggled to connect with the market during this cycle
2. Gross margin of 7.4% reflects its high production costs
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

C.H. Robinson Worldwide’s stock price of $151 implies a valuation ratio of 26.3x forward P/E. If you’re considering CHRW for your portfolio, see our FREE research report to learn more.

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