3 Cash-Producing Stocks We Approach with Caution

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.

Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here are three cash-producing companies to avoid and some better opportunities instead.

Yext (YEXT)

Trailing 12-Month Free Cash Flow Margin: 11%

Founded in 2006 by Howard Lerman, Yext (NYSE:YEXT) offers software as a service that helps their clients manage and monitor their online listings and customer reviews across all relevant databases, from Google Maps to Alexa or Siri.

Why Do We Think Twice About YEXT?

1. Underwhelming ARR growth of 8.8% over the last year suggests the company faced challenges in acquiring and retaining long-term customers
2. Estimated sales growth of 4.7% for the next 12 months is soft and implies weaker demand
3. Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low

Yext is trading at $8.48 per share, or 2.4x forward price-to-sales. Read our free research report to see why you should think twice about including YEXT in your portfolio.

Kirby (KEX)

Trailing 12-Month Free Cash Flow Margin: 10.2%

Transporting goods along all U.S. coasts, Kirby (NYSE:KEX) provides inland and coastal marine transportation services.

Why Are We Wary of KEX?

1. Muted 3.4% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 10.2 percentage points
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

Kirby’s stock price of $115.99 implies a valuation ratio of 17.1x forward P/E. Check out our free in-depth research report to learn more about why KEX doesn’t pass our bar.

BrightSpring Health Services (BTSG)

Trailing 12-Month Free Cash Flow Margin: 1.1%

Founded in 1974, BrightSpring Health Services (NASDAQ:BTSG) offers home health care, hospice, neuro-rehabilitation, and pharmacy services.

Why Is BTSG Not Exciting?

1. Earnings per share have dipped by 7% annually over the past three years, which is concerning because stock prices follow EPS over the long term
2. Free cash flow margin shrank by 4.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Low returns on capital reflect management’s struggle to allocate funds effectively

At $20.66 per share, BrightSpring Health Services trades at 32.4x forward P/E. To fully understand why you should be careful with BTSG, check out our full research report (it’s free).

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