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 to avoid and some better opportunities instead.

DocuSign (DOCU)

Trailing 12-Month Free Cash Flow Margin: 34.1%

Creating the digital equivalent of "sign on the dotted line" for over a billion users worldwide, DocuSign (NASDAQ: DOCU) provides an agreement management platform that enables businesses to electronically prepare, sign, and manage documents and contracts.

Why Do We Think DOCU Will Underperform?

1. Customers were hesitant to make long-term commitments to its software as its 8.5% average ARR growth over the last year was sluggish
2. Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
3. Operating margin improvement of 2.8 percentage points over the last year demonstrates its ability to scale efficiently

DocuSign’s stock price of $45.87 implies a valuation ratio of 2.5x forward price-to-sales. Dive into our free research report to see why there are better opportunities than DOCU.

Landstar (LSTR)

Trailing 12-Month Free Cash Flow Margin: 4.7%

Covering billions of miles throughout North America, Landstar (NASDAQ: LSTR) is a transportation company specializing in freight and last-mile delivery services.

Why Should You Sell LSTR?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 2.8% annually over the last two years
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 8.1% annually
3. Waning returns on capital imply its previous profit engines are losing steam

Landstar is trading at $208.20 per share, or 34.8x forward P/E. If you’re considering LSTR for your portfolio, see our FREE research report to learn more.

Privia Health (PRVA)

Trailing 12-Month Free Cash Flow Margin: 6.1%

Operating in 13 states and the District of Columbia with over 4,300 providers serving more than 4.8 million patients, Privia Health (NASDAQ: PRVA) is a technology-driven company that helps physicians optimize their practices, improve patient experiences, and transition to value-based care models.

Why Does PRVA Give Us Pause?

1. Subscale operations are evident in its revenue base of $2.25 billion, meaning it has fewer distribution channels than its larger rivals
2. Low free cash flow margin of 5% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Low returns on capital reflect management’s struggle to allocate funds effectively

At $27.35 per share, Privia Health trades at 24.9x forward P/E. Read our free research report to see why you should think twice about including PRVA in your portfolio.

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