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 to steer clear of and a few better alternatives.
Sanmina (SANM)
Trailing 12-Month Free Cash Flow Margin: 3.4%
Founded in 1980, Sanmina (NASDAQ: SANM) is an electronics manufacturing services company offering end-to-end solutions for various industries.
Why Should You Sell SANM?
- Sales tumbled by 6.2% annually over the last two years, showing market trends are working against its favor during this cycle
- Gross margin of 8.2% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Earnings per share have contracted by 4.2% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
Sanmina’s stock price of $87.16 implies a valuation ratio of 13x forward P/E. Check out our free in-depth research report to learn more about why SANM doesn’t pass our bar.
Columbus McKinnon (CMCO)
Trailing 12-Month Free Cash Flow Margin: 2.5%
With 19 different brands across the globe, Columbus McKinnon (NASDAQ: CMCO) offers material handling equipment for the construction, manufacturing, and transportation industries.
Why Do We Pass on CMCO?
- Sales trends were unexciting over the last two years as its 1.4% annual growth was below the typical industrials company
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 2.2% annually
- Free cash flow margin dropped by 10.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $15.35 per share, Columbus McKinnon trades at 5.7x forward P/E. Read our free research report to see why you should think twice about including CMCO in your portfolio.
Zebra (ZBRA)
Trailing 12-Month Free Cash Flow Margin: 19.6%
Taking its name from the black and white stripes of barcodes, Zebra Technologies (NASDAQ: ZBRA) provides barcode scanners, mobile computers, RFID systems, and other data capture technologies that help businesses track assets and optimize operations.
Why Do We Think ZBRA Will Underperform?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 8.2% annually, worse than its revenue
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Zebra is trading at $296.36 per share, or 19.1x forward P/E. To fully understand why you should be careful with ZBRA, check out our full research report (it’s free).
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