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 that don’t make the cut and some better opportunities instead.
Gray Television (GTN)
Trailing 12-Month Free Cash Flow Margin: 9.5%
Specializing in local media coverage, Gray Television (NYSE: GTN) is a broadcast company supplying digital media to various markets in the United States.
Why Do We Pass on GTN?
- Sales were flat over the last two years, indicating it’s failed to expand its business
- Projected 5.3 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
- High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Gray Television’s stock price of $5.72 implies a valuation ratio of 0.7x forward EV-to-EBITDA. If you’re considering GTN for your portfolio, see our FREE research report to learn more.
Snap-on (SNA)
Trailing 12-Month Free Cash Flow Margin: 18.6%
Founded in 1920, Snap-on (NYSE: SNA) is a global provider of tools, equipment, and diagnostics for various industries such as vehicle repair, aerospace, and the military.
Why Do We Think SNA Will Underperform?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Free cash flow margin shrank by 4.2 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Snap-on is trading at $324.76 per share, or 16.9x forward P/E. Check out our free in-depth research report to learn more about why SNA doesn’t pass our bar.
Zebra (ZBRA)
Trailing 12-Month Free Cash Flow Margin: 16.4%
Taking its name from the black and white stripes of barcodes, Zebra Technologies (NASDAQ: ZBRA) provides barcode scanners, mobile computers, RFID systems, and other data capture technologies that help businesses track assets and optimize operations.
Why Are We Out on ZBRA?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.9% annually over the last two years
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Earnings per share have dipped by 3.1% annually over the past two years, which is concerning because stock prices follow EPS over the long term
At $312.06 per share, Zebra trades at 20.5x forward P/E. Read our free research report to see why you should think twice about including ZBRA in your portfolio.
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