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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Okta (OKTA)
Trailing 12-Month Free Cash Flow Margin: 28.1%
Founded during the aftermath of the financial crisis in 2009, Okta (NASDAQ:OKTA) is a cloud-based software-as-a-service platform that helps companies manage identity for their employees and customers.
Why Is OKTA Not Exciting?
- Products, pricing, or go-to-market strategy may need some adjustments as its 9.9% average billings growth over the last year was weak
- Estimated sales growth of 9% for the next 12 months implies demand will slow from its three-year trend
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 1.4 percentage points over the next year
At $94.75 per share, Okta trades at 5.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than OKTA.
UFP Industries (UFPI)
Trailing 12-Month Free Cash Flow Margin: 3.2%
Beginning as a lumber supplier in the 1950s, UFP Industries (NASDAQ:UFPI) is a holding company making building materials for the construction, retail, and industrial sectors.
Why Are We Wary of UFPI?
- Declining unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Earnings per share have dipped by 21.7% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
UFP Industries’s stock price of $106.39 implies a valuation ratio of 15.1x forward P/E. To fully understand why you should be careful with UFPI, check out our full research report (it’s free).
TransUnion (TRU)
Trailing 12-Month Free Cash Flow Margin: 12%
One of the three major credit bureaus in the United States alongside Equifax and Experian, TransUnion (NYSE:TRU) is a global information and insights company that provides credit reports, fraud prevention tools, and data analytics to help businesses make decisions and consumers manage their financial health.
Why Are We Hesitant About TRU?
- 10.1 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
- Underwhelming 6% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
TransUnion is trading at $94.98 per share, or 22.6x forward P/E. Check out our free in-depth research report to learn more about why TRU doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
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