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 to steer clear of and a few better alternatives.
Dine Brands (DIN)
Trailing 12-Month Free Cash Flow Margin: 9.7%
Operating a franchise model, Dine Brands (NYSE: DIN) is a casual restaurant chain that owns the Applebee’s and IHOP banners.
Why Should You Sell DIN?
- Flat sales over the last six years suggest it must innovate and find new ways to grow
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $24.40 per share, Dine Brands trades at 4.7x forward P/E. If you’re considering DIN for your portfolio, see our FREE research report to learn more.
Snap-on (SNA)
Trailing 12-Month Free Cash Flow Margin: 19.5%
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 Does SNA Give Us Pause?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- 6.3 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Diminishing returns on capital suggest its earlier profit pools are drying up
Snap-on’s stock price of $326.99 implies a valuation ratio of 16.3x forward P/E. Read our free research report to see why you should think twice about including SNA in your portfolio.
Biogen (BIIB)
Trailing 12-Month Free Cash Flow Margin: 24.8%
Founded in 1978 and pioneering treatments for some of medicine's most complex challenges, Biogen (NASDAQ: BIIB) develops and markets therapies for neurological conditions, including multiple sclerosis, Alzheimer's disease, spinal muscular atrophy, and rare diseases.
Why Do We Pass on BIIB?
- Annual sales declines of 7.4% for the past five years show its products and services struggled to connect with the market during this cycle
- Sales are projected to tank by 7.2% over the next 12 months as its demand continues evaporating
- Sales were less profitable over the last five years as its earnings per share fell by 15.1% annually, worse than its revenue declines
Biogen is trading at $124.77 per share, or 7.8x forward P/E. Dive into our free research report to see why there are better opportunities than BIIB.
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