Generating cash is essential for any business, but not all cash-rich companies are great investments. Some produce plenty of cash but fail to allocate it effectively, leading to missed opportunities.
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 that don’t make the cut and some better opportunities instead.
Alarm.com (ALRM)
Trailing 12-Month Free Cash Flow Margin: 20.9%
Founded in 2000 as a business unit within MicroStrategy, Alarm.com (NASDAQ: ALRM) is a software-as-a-service platform that enables users to control their security systems and smart home appliances from a single app.
Why Does ALRM Give Us Pause?
- Offerings struggled to generate meaningful interest as its average billings growth of 6.5% over the last year did not impress
- Estimated sales growth of 4.1% for the next 12 months implies demand will slow from its three-year trend
- Gross margin of 65.3% is below its competitors, leaving less money to invest in areas like marketing and R&D
Alarm.com’s stock price of $51.89 implies a valuation ratio of 3.1x forward price-to-sales. If you’re considering ALRM for your portfolio, see our FREE research report to learn more.
Leslie's (LESL)
Trailing 12-Month Free Cash Flow Margin: 2.5%
Named after founder Philip Leslie, who established the company in 1963, Leslie’s (NASDAQ: LESL) is a retailer that sells pool and spa supplies, equipment, and maintenance services.
Why Are We Wary of LESL?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Smaller revenue base of $1.33 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- High net-debt-to-EBITDA ratio of 10× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $0.61 per share, Leslie's trades at 9.6x forward price-to-earnings. Check out our free in-depth research report to learn more about why LESL doesn’t pass our bar.
Crown Holdings (CCK)
Trailing 12-Month Free Cash Flow Margin: 6.9%
Formerly Crown Cork & Seal, Crown Holdings (NYSE: CCK) produces packaging products for consumer marketing companies, including food, beverage, household, and industrial products.
Why Should You Dump CCK?
- Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
- Projected sales growth of 1.8% for the next 12 months suggests sluggish demand
- Earnings per share have dipped by 2.5% annually over the past two years, which is concerning because stock prices follow EPS over the long term
Crown Holdings is trading at $87.80 per share, or 12.7x forward price-to-earnings. Read our free research report to see why you should think twice about including CCK in your portfolio.
Stocks We Like More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
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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.
