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. Keeping that in mind, here are three cash-producing companies to steer clear of and a few better alternatives.
Snap (SNAP)
Trailing 12-Month Free Cash Flow Margin: 7%
Founded by Stanford University students Evan Spiegel, Reggie Brown, and Bobby Murphy, and originally called Picaboo, Snapchat (NYSE: SNAP) is an image centric social media network.
Why Is SNAP Not Exciting?
- Muted 7.5% annual revenue growth over the last three years shows its demand lagged behind its consumer internet peers
- Focus on expanding its platform has led to weaker growth in its average revenue per user
- Issuance of new shares over the last three years caused its earnings per share to fall by 2.3% annually while its revenue grew
At $7.94 per share, Snap trades at 21.7x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than SNAP.
National Vision (EYE)
Trailing 12-Month Free Cash Flow Margin: 3%
Operating under multiple brands, National Vision (NYSE: EYE) sells optical products such as eyeglasses and provides optical services such as eye exams.
Why Are We Hesitant About EYE?
- Store closures are a headwind for growth and suggest it’s rightsizing operations to optimize sales at existing locations
- Operating margin of 0.6% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
National Vision’s stock price of $24.92 implies a valuation ratio of 32.3x forward P/E. To fully understand why you should be careful with EYE, check out our full research report (it’s free for active Edge members).
Amneal (AMRX)
Trailing 12-Month Free Cash Flow Margin: 9.9%
Founded in 2002 and growing into one of America's largest generic drug producers, Amneal Pharmaceuticals (NASDAQ: AMRX) develops, manufactures, and distributes generic medicines, specialty branded drugs, biosimilars, and injectable products for the U.S. healthcare market.
Why Are We Cautious About AMRX?
- ROIC of 3.7% reflects management’s challenges in identifying attractive investment opportunities
Amneal is trading at $10.40 per share, or 14.7x forward P/E. If you’re considering AMRX for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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Don’t let fear keep you from great opportunities and take a look at 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 183% over the last five years (as of March 31st 2025).
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