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 that don’t make the cut and some better opportunities instead.
ACV Auctions (ACVA)
Trailing 12-Month Free Cash Flow Margin: 6.2%
Founded in 2014, ACV Auctions (NASDAQ:ACVA) is an online auction marketplace for car dealers and wholesalers to buy and sell used cars.
Why Does ACVA Fall Short?
- High servicing costs result in an inferior gross margin of 27.4% that must be offset through higher volumes
- Expensive marketing campaigns hurt its profitability and make us wonder what would happen if it let up on the gas
- Low free cash flow margin of 4.1% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
ACV Auctions’s stock price of $8.99 implies a valuation ratio of 21.5x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than ACVA.
Enpro (NPO)
Trailing 12-Month Free Cash Flow Margin: 14.1%
Holding a Guinness World Record for creating the world's largest gasket, Enpro (NYSE:NPO) designs, manufactures, and sells products used for machinery in various industries.
Why Are We Cautious About NPO?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.7% annually
- ROIC of 6.5% reflects management’s challenges in identifying attractive investment opportunities
At $241.89 per share, Enpro trades at 27.1x forward P/E. Check out our free in-depth research report to learn more about why NPO doesn’t pass our bar.
Viatris (VTRS)
Trailing 12-Month Free Cash Flow Margin: 11.8%
Created through the 2020 merger of Mylan and Pfizer's Upjohn division, Viatris (NASDAQ:VTRS) is a healthcare company that develops, manufactures, and distributes branded and generic medicines across more than 165 countries worldwide.
Why Are We Out on VTRS?
- Annual sales declines of 4.4% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share fell by 13.1% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Push for growth has led to negative returns on capital, signaling value destruction, and its falling returns suggest its earlier profit pools are drying up
Viatris is trading at $12.85 per share, or 5.5x forward P/E. Read our free research report to see why you should think twice about including VTRS in your portfolio.
Stocks We Like More
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