3 Cash-Producing Stocks We Think Twice About

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. Keeping that in mind, here are three cash-producing companies to steer clear of and a few better alternatives.

WillScot Mobile Mini (WSC)

Trailing 12-Month Free Cash Flow Margin: 17.3%

Originally focusing on mobile offices for construction sites, WillScot (NASDAQ:WSC) provides ready-to-use temporary spaces, largely for longer-term lease.

Why Is WSC Not Exciting?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. Free cash flow margin dropped by 6.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up

WillScot Mobile Mini is trading at $23.21 per share, or 13.5x forward P/E. To fully understand why you should be careful with WSC, check out our full research report (it’s free).

GXO Logistics (GXO)

Trailing 12-Month Free Cash Flow Margin: 1.2%

With notable customers such as Nike and Apple, GXO (NYSE:GXO) manages outsourced supply chains and warehousing for various companies.

Why Does GXO Fall Short?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Earnings per share fell by 2.2% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
3. 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

At $52.22 per share, GXO Logistics trades at 18.8x forward P/E. If you’re considering GXO for your portfolio, see our FREE research report to learn more.

Privia Health (PRVA)

Trailing 12-Month Free Cash Flow Margin: 4.8%

Operating in 13 states and the District of Columbia with over 4,300 providers serving more than 4.8 million patients, Privia Health (NASDAQ:PRVA) is a technology-driven company that helps physicians optimize their practices, improve patient experiences, and transition to value-based care models.

Why Do We Think Twice About PRVA?

1. Revenue base of $1.9 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
2. Low free cash flow margin of 4.3% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Push for growth has led to negative returns on capital, signaling value destruction

Privia Health’s stock price of $21.33 implies a valuation ratio of 24.1x forward P/E. Read our free research report to see why you should think twice about including PRVA in your portfolio.

High-Quality Stocks for All Market Conditions

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