3 Cash-Producing Stocks That Fall Short

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.

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.

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 Is GXO Not Exciting?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
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 $52.38 per share, GXO Logistics trades at 18.1x forward P/E. If you’re considering GXO for your portfolio, see our FREE research report to learn more.

A. O. Smith (AOS)

Trailing 12-Month Free Cash Flow Margin: 13%

Credited with the invention of the glass-lined water heater, A.O. Smith (NYSE:AOS) manufactures water heating and treatment products for various industries.

Why Does AOS Worry Us?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Earnings per share lagged its peers over the last two years as they only grew by 2.7% annually
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

A. O. Smith is trading at $68.30 per share, or 17x forward P/E. Dive into our free research report to see why there are better opportunities than AOS.

Stanley Black & Decker (SWK)

Trailing 12-Month Free Cash Flow Margin: 2.7%

With an iconic “STANLEY” logo which has remained virtually unchanged for over a century, Stanley Black & Decker (NYSE:SWK) is a manufacturer primarily catering to the tool and outdoor equipment industry.

Why Is SWK Risky?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 8.6% annually while its revenue grew
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 10.5 percentage points

Stanley Black & Decker’s stock price of $65.29 implies a valuation ratio of 12.8x forward P/E. Check out our free in-depth research report to learn more about why SWK doesn’t pass our bar.

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