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. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
MSA Safety (MSA)
Trailing 12-Month Free Cash Flow Margin: 13.8%
Founded in 1914 as Mine Safety Appliances to protect coal miners from dangerous gases, MSA Safety (NYSE: MSA) designs and manufactures advanced safety products that protect workers and facilities across industries including fire service, energy, construction, and manufacturing.
Why Do We Think Twice About MSA?
- Muted 4.6% annual revenue growth over the last two years shows its demand lagged behind its business services peers
- Modest revenue base of $1.83 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Earnings per share lagged its peers over the last two years as they only grew by 9.3% annually
MSA Safety is trading at $172.07 per share, or 20.6x forward P/E. If you’re considering MSA for your portfolio, see our FREE research report to learn more.
Bel Fuse (BELFA)
Trailing 12-Month Free Cash Flow Margin: 8.1%
Founded by 26-year-old Elliot Bernstein during the electronics boom after WW2, Bel Fuse (NASDAQ: BELF.A) provides electronic systems and devices to the telecommunications, networking, transportation, and industrial sectors.
Why Is BELFA Not Exciting?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.1% annually over the last two years
- Earnings per share have dipped by 16.2% annually over the past two years, which is concerning because stock prices follow EPS over the long term
Bel Fuse’s stock price of $116.35 implies a valuation ratio of 21.5x forward P/E. Dive into our free research report to see why there are better opportunities than BELFA.
Viatris (VTRS)
Trailing 12-Month Free Cash Flow Margin: 12.4%
Created through the 2020 merger of Mylan and Pfizer's Upjohn division, Viatris (NASDAQ: VTRS) is a healthcare company that develops, manufactures, and distributes branded and generic medicines across more than 165 countries worldwide.
Why Do We Avoid VTRS?
- Sales tumbled by 4.9% annually over the last two years, showing market trends are working against its favor during this cycle
- Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 12% annually
- Negative returns on capital show management lost money while trying to expand the business, and its decreasing returns suggest its historical profit centers are aging
At $9.90 per share, Viatris trades at 4.3x forward P/E. Check out our free in-depth research report to learn more about why VTRS doesn’t pass our bar.
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