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.
TEGNA (TGNA)
Trailing 12-Month Free Cash Flow Margin: 14.9%
Spun out of Gannett in 2015, TEGNA (NYSE:TGNA) is a media company operating a network of television stations and digital platforms, focusing on local news and community content.
Why Do We Avoid TGNA?
- Sales trends were unexciting over the last five years as its 1.3% annual growth was below the typical consumer discretionary company
- Earnings per share lagged its peers over the last five years as they only grew by 7.9% annually
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
TEGNA is trading at $18.96 per share, or 8.1x forward P/E. To fully understand why you should be careful with TGNA, check out our full research report (it’s free).
Acushnet (GOLF)
Trailing 12-Month Free Cash Flow Margin: 4.4%
Producer of the acclaimed Titleist Pro V1 golf ball, Acushnet (NYSE:GOLF) is a design and manufacturing company specializing in performance-driven golf products.
Why Do We Think GOLF Will Underperform?
- Lackluster 10.1% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Poor free cash flow margin of 7.2% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Acushnet’s stock price of $99.87 implies a valuation ratio of 25.8x forward P/E. Read our free research report to see why you should think twice about including GOLF in your portfolio.
Flutter Entertainment (FLUT)
Trailing 12-Month Free Cash Flow Margin: 5.4%
With its digital fingerprints on nearly every aspect of global gambling, from the Super Bowl bettor to the online poker aficionado, Flutter Entertainment (NASDAQ:FLUT) operates a portfolio of leading online sports betting and gaming brands including FanDuel, PokerStars, Paddy Power, and Sky Betting & Gaming.
Why Do We Steer Clear of FLUT?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 16.8% for the last two years
- Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
- Rising returns on capital show management is making relatively better investments
At $149.63 per share, Flutter Entertainment trades at 19.9x forward P/E. Dive into our free research report to see why there are better opportunities than FLUT.
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