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.
VF Corp (VFC)
Trailing 12-Month Free Cash Flow Margin: 2.9%
Owner of The North Face, Vans, and Supreme, VF Corp (NYSE: VFC) is a clothing conglomerate specializing in branded lifestyle apparel, footwear, and accessories.
Why Should You Dump VFC?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
VF Corp’s stock price of $19.51 implies a valuation ratio of 23.4x forward P/E. Dive into our free research report to see why there are better opportunities than VFC.
Tecnoglass (TGLS)
Trailing 12-Month Free Cash Flow Margin: 6%
The first-ever Colombian company to trade on the NASDAQ, Tecnoglass (NYSE: TGLS) is a manufacturer of architectural glass, windows, and aluminum products.
Why Does TGLS Worry Us?
- 7.3% annual revenue growth over the last two years was slower than its industrials peers
- Earnings per share have dipped by 3.2% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Free cash flow margin dropped by 10.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $53.12 per share, Tecnoglass trades at 13.7x forward P/E. To fully understand why you should be careful with TGLS, check out our full research report (it’s free for active Edge members).
Agilent (A)
Trailing 12-Month Free Cash Flow Margin: 16.6%
Originally spun off from Hewlett-Packard in 1999 as its measurement and analytical division, Agilent Technologies (NYSE: A) provides analytical instruments, software, services, and consumables for laboratory workflows in life sciences, diagnostics, and applied chemical markets.
Why Does A Fall Short?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- 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
- 3.9 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
Agilent is trading at $142.89 per share, or 24.2x forward P/E. If you’re considering A for your portfolio, see our FREE research report to learn more.
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