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 that don’t make the cut and some better opportunities instead.
Trailing 12-Month Free Cash Flow Margin: 18.8%
Founded in 1999 during the dot-com era, RingCentral (NYSE:RNG) provides software as a service that unifies phone, text, fax, video calls and chat in one platform.
Why Does RNG Give Us Pause?
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Offerings struggled to generate meaningful interest as its average billings growth of 6.7% over the last year did not impress
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Estimated sales growth of 5% for the next 12 months implies demand will slow from its three-year trend
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Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
At $27.06 per share, RingCentral trades at 0.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than RNG.
Trailing 12-Month Free Cash Flow Margin: 3.7%
With an aesthetic that features natural materials such as reclaimed wood, Arhaus (NASDAQ:ARHS) is a high-end furniture retailer that sells everything from sofas to rugs to bookcases.
Why Do We Think Twice About ARHS?
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Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
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Revenue base of $1.29 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
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Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 5 percentage points
Arhaus is trading at $8.87 per share, or 17.4x forward P/E. Check out our free in-depth research report to learn more about why ARHS doesn’t pass our bar.
Trailing 12-Month Free Cash Flow Margin: 2.6%
Named after founder Philip Leslie, who established the company in 1963, Leslie’s (NASDAQ:LESL) is a retailer that sells pool and spa supplies, equipment, and maintenance services.
Why Should You Sell LESL?
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Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
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Falling earnings per share over the last four years has some investors worried as stock prices ultimately follow EPS over the long term
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High net-debt-to-EBITDA ratio of 12× increases the risk of forced asset sales or dilutive financing if operational performance weakens