A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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 steer clear of and a few better alternatives.
Academy Sports (ASO)
Trailing 12-Month Free Cash Flow Margin: 4.5%
Founded in 1938 as a tire shop before expanding into fishing equipment, Academy Sports & Outdoor (NASDAQ: ASO) sells a broad selection of sporting goods but is still known for its outdoor activity merchandise.
Why Do We Think Twice About ASO?
- 3.8% annual revenue growth over the last six years was slower than its consumer retail peers
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Free cash flow margin dropped by 3.4 percentage points over the last year, implying the company became more capital intensive as competition picked up
At $45.65 per share, Academy Sports trades at 7.6x forward P/E. Check out our free in-depth research report to learn more about why ASO doesn’t pass our bar.
Northrop Grumman (NOC)
Trailing 12-Month Free Cash Flow Margin: 4.4%
Responsible for the development of the first stealth bomber, Northrop Grumman (NYSE: NOC) specializes in providing aerospace, defense, and security solutions for various industry applications.
Why Should You Sell NOC?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Free cash flow margin shrank by 6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Waning returns on capital imply its previous profit engines are losing steam
Northrop Grumman is trading at $495 per share, or 17.4x forward P/E. Dive into our free research report to see why there are better opportunities than NOC.
Amdocs (DOX)
Trailing 12-Month Free Cash Flow Margin: 12.7%
Powering the digital experiences of approximately 400 communications companies worldwide, Amdocs (NASDAQ: DOX) provides software and services that help telecommunications and media companies manage customer relationships, monetize services, and automate network operations.
Why Do We Avoid DOX?
- Average backlog growth of 1.6% over the past two years was mediocre and suggests fewer customers signed long-term contracts
- Forecasted revenue decline of 3.5% for the upcoming 12 months implies demand will fall off a cliff
- Free cash flow margin shrank by 4.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Amdocs’s stock price of $94.21 implies a valuation ratio of 12.9x forward P/E. Read our free research report to see why you should think twice about including DOX in your portfolio.
Stocks We Like More
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