3 Cash-Producing Stocks with Warning Signs

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. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.

Asana (ASAN)

Trailing 12-Month Free Cash Flow Margin: 5.2%

Born from the founders' frustration with the inefficiencies of email-based collaboration at Facebook, Asana (NYSE:ASAN) provides a work management platform that helps organizations track projects, set goals, and manage workflows in a centralized digital workspace.

Why Are We Out on ASAN?

1. Offerings struggled to generate meaningful interest as its average billings growth of 9.6% over the last year did not impress
2. Net revenue retention rate of 95.7% shows it has a tough time retaining customers
3. Drawn-out sales process reflects its software’s integration hurdles with enterprise clients, restraining customer growth potential

Asana is trading at $13.20 per share, or 3.8x forward price-to-sales. To fully understand why you should be careful with ASAN, check out our full research report (it’s free for active Edge members).

Clean Harbors (CLH)

Trailing 12-Month Free Cash Flow Margin: 8.3%

Established in 1980, Clean Harbors (NYSE:CLH) provides environmental and industrial services like hazardous and non-hazardous waste disposal and emergency spill cleanups.

Why Does CLH 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. Estimated sales growth of 3.5% for the next 12 months implies demand will slow from its two-year trend
3. Earnings per share lagged its peers over the last two years as they only grew by 5% annually

At $205.12 per share, Clean Harbors trades at 26.1x forward P/E. Dive into our free research report to see why there are better opportunities than CLH.

Knowles (KN)

Trailing 12-Month Free Cash Flow Margin: 19.1%

With roots dating back to 1946 and a focus on components that must perform flawlessly in critical situations, Knowles (NYSE:KN) designs and manufactures specialized electronic components like high-performance capacitors, microphones, and speakers for medical technology, defense, and industrial applications.

Why Is KN Risky?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.7% annually over the last five years
2. Smaller revenue base of $573.5 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
3. Underwhelming 8.3% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its shrinking returns suggest its past profit sources are losing steam

Knowles’s stock price of $22.52 implies a valuation ratio of 18.7x forward P/E. If you’re considering KN for your portfolio, see our FREE research report to learn more.

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