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.
Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
BWX (BWXT)
Trailing 12-Month Free Cash Flow Margin: 12.6%
Contributing components and materials to the famous Manhattan Project in the 1940s, BWX (NYSE: BWXT) is a manufacturer and service provider of nuclear components and fuel for government and commercial industries.
Why Do We Think Twice About BWXT?
- Annual revenue growth of 6.9% over the last five years was below our standards for the industrials sector
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 2.3 percentage points
- Earnings per share lagged its peers over the last five years as they only grew by 4.2% annually
BWX’s stock price of $214.89 implies a valuation ratio of 58x forward P/E. To fully understand why you should be careful with BWXT, check out our full research report (it’s free for active Edge members).
Covenant Logistics (CVLG)
Trailing 12-Month Free Cash Flow Margin: 3.8%
Started with 25 trucks and 50 trailers, Covenant Logistics (NASDAQ: CVLG) is a provider of expedited long haul freight services, offering a range of logistics solutions.
Why Should You Sell CVLG?
- Sales stagnated over the last two years and signal the need for new growth strategies
- 10 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
Covenant Logistics is trading at $19.80 per share, or 10.9x forward P/E. Read our free research report to see why you should think twice about including CVLG in your portfolio.
U.S. Physical Therapy (USPH)
Trailing 12-Month Free Cash Flow Margin: 8.3%
With a nationwide footprint spanning 671 clinics across 42 states, U.S. Physical Therapy (NYSE: USPH) operates a network of outpatient physical therapy clinics and provides industrial injury prevention services to employers across the United States.
Why Does USPH Give Us Pause?
- Smaller revenue base of $729.6 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- 9 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
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $86.22 per share, U.S. Physical Therapy trades at 31.1x forward P/E. Dive into our free research report to see why there are better opportunities than USPH.
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