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.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here are three cash-producing companies to avoid and some better opportunities instead.
La-Z-Boy (LZB)
Trailing 12-Month Free Cash Flow Margin: 5.3%
The prized possession of every mancave, La-Z-Boy (NYSE:LZB) is a furniture company specializing in recliners, sofas, and seats.
Why Are We Out on LZB?
- Annual revenue declines of 8% over the last two years indicate problems with its market positioning
- Estimated sales growth of 1.8% for the next 12 months is soft and implies weaker demand
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
La-Z-Boy’s stock price of $40.26 implies a valuation ratio of 12x forward P/E. If you’re considering LZB for your portfolio, see our FREE research report to learn more.
Woodward (WWD)
Trailing 12-Month Free Cash Flow Margin: 9.4%
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 Fall Short?
- Sales trends were unexciting over the last five years as its 2.8% annual growth was below the typical industrials company
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 3.1% annually
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 12.9 percentage points
At $233.23 per share, Woodward trades at 35.2x forward P/E. Read our free research report to see why you should think twice about including WWD in your portfolio.
Vontier (VNT)
Trailing 12-Month Free Cash Flow Margin: 12.4%
A spin-off of a spin-off, Vontier (NYSE:VNT) provides electronic products and systems to the transportation, automotive, and manufacturing sectors.
Why Do We Think VNT Will Underperform?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- 14.8 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
- Waning returns on capital imply its previous profit engines are losing steam
Vontier is trading at $36.74 per share, or 11.6x forward P/E. Check out our free in-depth research report to learn more about why VNT doesn’t pass our bar.
Stocks We Like More
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