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. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Box (BOX)
Trailing 12-Month Free Cash Flow Margin: 27.2%
Known as the "Content Cloud" for managing the 90% of business data that exists as unstructured files and documents, Box (NYSE:BOX) provides a cloud-based platform that enables organizations to securely manage, share, and collaborate on their content from anywhere on any device.
Why Is BOX Not Exciting?
- 6.6% annual revenue growth over the last three years was slower than its software peers
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 7.9%
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 1.5 percentage points
At $31.60 per share, Box trades at 4x forward price-to-sales. If you’re considering BOX for your portfolio, see our FREE research report to learn more.
Macy's (M)
Trailing 12-Month Free Cash Flow Margin: 1.1%
With a storied history that began with its 1858 founding, Macy’s (NYSE:M) is a department store chain that sells clothing, cosmetics, accessories, and home goods.
Why Are We Out on M?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Projected sales decline of 4.3% over the next 12 months indicates demand will continue deteriorating
- Subpar operating margin of 2.3% constrains its ability to invest in process improvements or effectively respond to new competitive threats
Macy's is trading at $12.86 per share, or 6.7x forward P/E. Check out our free in-depth research report to learn more about why M doesn’t pass our bar.
Allient (ALNT)
Trailing 12-Month Free Cash Flow Margin: 10.7%
Founded in 1962, Allient (NASDAQ:ALNT) develops and manufactures precision and specialty-controlled motion components and systems.
Why Are We Hesitant About ALNT?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 3.5% annually over the last two years
- Performance over the past two years was negatively impacted by new share issuances as its earnings per share dropped by 12.6% annually, worse than its revenue
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its decreasing returns suggest its historical profit centers are aging
Allient’s stock price of $43.56 implies a valuation ratio of 20.9x forward P/E. Read our free research report to see why you should think twice about including ALNT in your portfolio.
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