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. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Hilton Grand Vacations (HGV)
Trailing 12-Month Free Cash Flow Margin: 23.2%
Spun off from Hilton Worldwide in 2017, Hilton Grand Vacations (NYSE:HGV) is a global timeshare company that provides travel experiences for its customers through its timeshare resorts and club membership programs.
Why Are We Cautious About HGV?
- 11.2% annual revenue growth over the last two years was slower than its consumer discretionary peers
- Underwhelming 3.6% return on capital reflects management’s difficulties in finding profitable growth opportunities
- High net-debt-to-EBITDA ratio of 15× could force the company to raise capital at unfavorable terms if market conditions deteriorate
At $43.75 per share, Hilton Grand Vacations trades at 12.2x forward P/E. Read our free research report to see why you should think twice about including HGV in your portfolio.
Acushnet (GOLF)
Trailing 12-Month Free Cash Flow Margin: 3.9%
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 Is GOLF Not Exciting?
- Muted 2.2% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
- Anticipated sales growth of 1.8% for the next year implies demand will be shaky
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Acushnet’s stock price of $76.68 implies a valuation ratio of 20.3x forward P/E. If you’re considering GOLF for your portfolio, see our FREE research report to learn more.
Knight-Swift Transportation (KNX)
Trailing 12-Month Free Cash Flow Margin: 4.5%
Covering 1.6 billion loaded miles in 2023 alone, Knight-Swift Transportation (NYSE:KNX) offers less-than-truckload and full truckload delivery services.
Why Do We Avoid KNX?
- 4.3% annual revenue growth over the last two years was slower than its industrials peers
- 9.1 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
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Knight-Swift Transportation is trading at $42.78 per share, or 23.4x forward P/E. Check out our free in-depth research report to learn more about why KNX doesn’t pass our bar.
Stocks We Like More
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