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 to steer clear of and a few better alternatives.
SunOpta (STKL)
Trailing 12-Month Free Cash Flow Margin: 2.6%
Committed to clean-label foods, SunOpta (NASDAQ: STKL) is a sustainability-focused food and beverage company specializing in the sourcing, processing, and packaging of organic products.
Why Is STKL Not Exciting?
- Products aren't resonating with the market as its revenue declined by 3.8% annually over the last three years
- Smaller revenue base of $724 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Easily substituted products (and therefore stiff competition) result in an inferior gross margin of 16.6% that must be offset through higher volumes
At $3.89 per share, SunOpta trades at 14.7x forward price-to-earnings. If you’re considering STKL for your portfolio, see our FREE research report to learn more.
Envista (NVST)
Trailing 12-Month Free Cash Flow Margin: 12.1%
Uniting more than 30 trusted brands including Nobel Biocare, Ormco, and DEXIS under one corporate umbrella, Envista Holdings (NYSE: NVST) is a global dental products company that provides equipment, consumables, and specialized technologies for dental professionals.
Why Do We Think NVST Will Underperform?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Envista’s stock price of $15.18 implies a valuation ratio of 13.6x forward price-to-earnings. To fully understand why you should be careful with NVST, check out our full research report (it’s free).
Interpublic Group (IPG)
Trailing 12-Month Free Cash Flow Margin: 9.9%
With a history dating back to 1902 and roots in the McCann-Erickson agency, Interpublic Group (NYSE: IPG) is a marketing and communications holding company that owns agencies specializing in advertising, media buying, public relations, and digital marketing services.
Why Do We Steer Clear of IPG?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Forecasted revenue decline of 5.5% for the upcoming 12 months implies demand will fall even further
- 10.9 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
Interpublic Group is trading at $23.89 per share, or 9x forward price-to-earnings. Check out our free in-depth research report to learn more about why IPG doesn’t pass our bar.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Growth Stocks for this month. 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 Axon (+711% five-year return). Find your next big winner with StockStory today for free.
