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.
Calavo (CVGW)
Trailing 12-Month Free Cash Flow Margin: 4.1%
A trailblazer in the avocado industry, Calavo Growers (NASDAQ: CVGW) is a pioneering California-based provider of high-quality avocados and other fresh food products.
Why Is CVGW Risky?
- Annual sales declines of 17.2% for the past three years show its products struggled to connect with the market
- Revenue base of $693.7 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Gross margin of 10.1% is an output of its commoditized products
At $25.15 per share, Calavo trades at 14x forward P/E. Read our free research report to see why you should think twice about including CVGW in your portfolio.
Bruker (BRKR)
Trailing 12-Month Free Cash Flow Margin: 1.4%
With roots dating back to the pioneering days of nuclear magnetic resonance technology, Bruker (NASDAQ: BRKR) develops and manufactures high-performance scientific instruments that enable researchers and industrial analysts to explore materials at microscopic, molecular, and cellular levels.
Why Does BRKR Fall Short?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Free cash flow margin shrank by 12.4 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Eroding returns on capital suggest its historical profit centers are aging
Bruker is trading at $35.53 per share, or 16.8x forward P/E. Check out our free in-depth research report to learn more about why BRKR doesn’t pass our bar.
Affirm (AFRM)
Trailing 12-Month Free Cash Flow Margin: 18.7%
Founded by PayPal co-founder Max Levchin with a mission to create honest financial products, Affirm (NASDAQ: AFRM) provides a payment network that allows consumers to make purchases and pay for them over time with transparent, flexible installment loans.
Why Is AFRM Not Exciting?
- Push for growth has led to negative returns on capital, signaling value destruction
- High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Affirm’s stock price of $73.00 implies a valuation ratio of 30.6x forward P/E. If you’re considering AFRM for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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