A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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.
Asana (ASAN)
Trailing 12-Month Free Cash Flow Margin: 8.4%
Born from the founders' frustration with the inefficiencies of email-based collaboration at Facebook, Asana (NYSE: ASAN) provides a work management platform that helps organizations track projects, set goals, and manage workflows in a centralized digital workspace.
Why Do We Steer Clear of ASAN?
- Products, pricing, or go-to-market strategy may need some adjustments as its 9.3% average billings growth over the last year was weak
- Customers have churned over the last year due to the commoditized nature of its software, as reflected in its 95.7% net revenue retention rate
- Complex implementation process for enterprise clients means customers take longer to ramp up, as seen in its extended payback periods
Asana’s stock price of $7.56 implies a valuation ratio of 2.1x forward price-to-sales. Check out our free in-depth research report to learn more about why ASAN doesn’t pass our bar.
PACCAR (PCAR)
Trailing 12-Month Free Cash Flow Margin: 12%
Founded more than a century ago, PACCAR (NASDAQ: PCAR) designs and manufactures commercial trucks of various weights and sizes for the commercial trucking industry.
Why Are We Hesitant About PCAR?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 10% annually over the last two years
- Gross margin of 16.5% reflects its high production costs
- Earnings per share have dipped by 27.8% annually over the past two years, which is concerning because stock prices follow EPS over the long term
PACCAR is trading at $127.67 per share, or 22.9x forward P/E. To fully understand why you should be careful with PCAR, check out our full research report (it’s free).
MYR Group (MYRG)
Trailing 12-Month Free Cash Flow Margin: 4.4%
Constructing electrical and phone lines in the American Midwest dating back to the 1890s, MYR Group (NASDAQ: MYRG) is a specialty contractor in the electrical construction industry.
Why Do We Think Twice About MYRG?
- Backlog growth averaged a weak 4.4% over the past two years, suggesting it may need to tweak its product roadmap or go-to-market strategy
- Gross margin of 10.8% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Eroding returns on capital suggest its historical profit centers are aging
At $279.37 per share, MYR Group trades at 31.9x forward P/E. If you’re considering MYRG for your portfolio, see our FREE research report to learn more.
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