A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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 to steer clear of and a few better alternatives.
Fortive (FTV)
Trailing 12-Month Free Cash Flow Margin: 22.6%
Taking its name from the Latin root of "strong", Fortive (NYSE: FTV) manufactures products and develops industrial software for numerous industries.
Why Are We Cautious About FTV?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
- Performance over the past five years was negatively impacted by new share issuances as its earnings per share grew slower than its revenue
Fortive is trading at $65.44 per share, or 15.8x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than FTV.
Dentsply Sirona (XRAY)
Trailing 12-Month Free Cash Flow Margin: 7.4%
With roots dating back to 1877 when it introduced the first dental electric drill, Dentsply Sirona (NASDAQ: XRAY) manufactures and sells professional dental equipment, technologies, and consumable products used by dentists and specialists worldwide.
Why Do We Steer Clear of XRAY?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 7.4% annually, worse than its revenue
- Negative returns on capital show that some of its growth strategies have backfired, and its decreasing returns suggest its historical profit centers are aging
At $12.94 per share, Dentsply Sirona trades at 6.7x forward price-to-earnings. Read our free research report to see why you should think twice about including XRAY in your portfolio.
Azenta (AZTA)
Trailing 12-Month Free Cash Flow Margin: 4%
Serving as the guardian of some of medicine's most valuable materials, Azenta (NASDAQ: AZTA) provides biological sample management, storage, and genomic services that help pharmaceutical and biotechnology companies preserve and analyze critical research materials.
Why Do We Pass on AZTA?
- Annual sales declines of 6.5% for the past five years show its products and services struggled to connect with the market during this cycle
- Earnings per share have contracted by 9% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Cash-burning history makes us doubt the long-term viability of its business model
Azenta’s stock price of $24.98 implies a valuation ratio of 48.9x forward price-to-earnings. Check out our free in-depth research report to learn more about why AZTA doesn’t pass our bar.
Stocks We Like More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
