3 Cash-Producing Stocks with Mounting Challenges

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.

Luckily for you, we built StockStory to help you separate the good from the bad. That said, here are three cash-producing companies to avoid and some better opportunities instead.

LSI (LYTS)

Trailing 12-Month Free Cash Flow Margin: 6.4%

Enhancing commercial environments, LSI (NASDAQ:LYTS) provides lighting and display solutions for businesses and retailers.

Why Are We Hesitant About LYTS?

1. Annual revenue growth of 4.5% over the last two years was below our standards for the industrials sector
2. Performance over the past two years was negatively impacted by new share issuances as its earnings per share grew slower than its revenue
3. Free cash flow margin dropped by 5.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up

LSI’s stock price of $17.68 implies a valuation ratio of 14.7x forward P/E. Dive into our free research report to see why there are better opportunities than LYTS.

Surgery Partners (SGRY)

Trailing 12-Month Free Cash Flow Margin: 5.5%

With more than 180 locations across 33 states serving as alternatives to traditional hospital settings, Surgery Partners (NASDAQ:SGRY) operates a national network of outpatient surgical facilities including ambulatory surgery centers and short-stay surgical hospitals.

Why Does SGRY Fall Short?

1. Underwhelming unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
2. Free cash flow margin shrank by 6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

At $22.48 per share, Surgery Partners trades at 20.2x forward P/E. Read our free research report to see why you should think twice about including SGRY in your portfolio.

DaVita (DVA)

Trailing 12-Month Free Cash Flow Margin: 13.6%

With over 2,600 dialysis centers across the United States and a presence in 13 countries, DaVita (NYSE:DVA) operates a network of dialysis centers providing treatment and care for patients with chronic kidney disease and end-stage kidney disease.

Why Does DVA Worry Us?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.5% over the last five years was below our standards for the healthcare sector
2. Flat treatments over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
3. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 4.6%

DaVita is trading at $142.55 per share, or 12.3x forward P/E. Check out our free in-depth research report to learn more about why DVA doesn’t pass our bar.

Stocks We Like More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 6 Stocks for this week. 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).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today

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