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. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Victoria's Secret (VSCO)
Trailing 12-Month Free Cash Flow Margin: 4.8%
Spun off from L Brands in 2020, Victoria’s Secret (NYSE:VSCO) is an intimate clothing and beauty retailer that sells its own brands of lingerie, undergarments, and personal fragrances.
Why Should You Dump VSCO?
- Sales stagnated over the last three years and signal the need for new growth strategies
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
Victoria's Secret is trading at $62.41 per share, or 22.2x forward P/E. Read our free research report to see why you should think twice about including VSCO in your portfolio.
Darden (DRI)
Trailing 12-Month Free Cash Flow Margin: 8%
Founded in 1968 as Red Lobster, Darden (NYSE:DRI) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.
Why Does DRI Give Us Pause?
- Annual sales growth of 6.4% over the last six years lagged behind its restaurant peers as its large revenue base made it difficult to generate incremental demand
- Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
- Gross margin of 21.6% reflects the bad unit economics inherent in most restaurant businesses
Darden’s stock price of $218.17 implies a valuation ratio of 19.6x forward P/E. If you’re considering DRI for your portfolio, see our FREE research report to learn more.
Amphastar Pharmaceuticals (AMPH)
Trailing 12-Month Free Cash Flow Margin: 15.7%
Founded in 1996 and known for its expertise in complex drug formulations, Amphastar Pharmaceuticals (NASDAQ:AMPH) develops and manufactures technically challenging injectable and inhalation medications, including both generic and proprietary pharmaceutical products.
Why Are We Wary of AMPH?
- Smaller revenue base of $723.3 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Efficiency has decreased over the last two years as its adjusted operating margin fell by 4.3 percentage points
At $28.63 per share, Amphastar Pharmaceuticals trades at 8.3x forward P/E. To fully understand why you should be careful with AMPH, check out our full research report (it’s free).
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