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.
Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Enpro (NPO)
Trailing 12-Month Free Cash Flow Margin: 14%
Holding a Guinness World Record for creating the world's largest gasket, Enpro (NYSE:NPO) designs, manufactures, and sells products used for machinery in various industries.
Why Do We Think Twice About NPO?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Flat earnings per share over the last two years underperformed the sector average
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Enpro’s stock price of $226.20 implies a valuation ratio of 28.7x forward P/E. Dive into our free research report to see why there are better opportunities than NPO.
Organon (OGN)
Trailing 12-Month Free Cash Flow Margin: 10.5%
Spun off from Merck in 2021 to create a company dedicated to addressing unmet needs in women's health, Organon (NYSE:OGN) is a global healthcare company focused on improving women's health through prescription therapies, medical devices, biosimilars, and established medicines.
Why Are We Cautious About OGN?
- Annual sales declines of 2.6% for the past five years show its products and services struggled to connect with the market during this cycle
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Free cash flow margin dropped by 25.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $9.13 per share, Organon trades at 2.4x forward P/E. Check out our free in-depth research report to learn more about why OGN doesn’t pass our bar.
Western Union (WU)
Trailing 12-Month Free Cash Flow Margin: 9.1%
With a history dating back to 1851 when it began as a telegraph company, Western Union (NYSE:WU) is a global money transfer service that enables consumers and businesses to send funds across borders and currencies, typically within minutes.
Why Do We Think WU Will Underperform?
- Sales tumbled by 3.6% annually over the last five years, showing market trends are working against its favor during this cycle
- Earnings per share were flat over the last five years and fell short of the peer group average
- Negative return on equity shows management lost money while trying to expand the business
Western Union is trading at $8.63 per share, or 4.7x forward P/E. Read our free research report to see why you should think twice about including WU in your portfolio.
Stocks We Like More
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