3 Cash-Producing Stocks We're Skeptical Of

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.

Array (AD)

Trailing 12-Month Free Cash Flow Margin: 8.5%

Operating as a majority-owned subsidiary of Telephone and Data Systems since its founding in 1983, Array (NYSE:Array) is a regional wireless telecommunications provider serving 4.6 million customers across 21 states with mobile phone, internet, and IoT services.

Why Do We Think AD Will Underperform?

1. Annual sales declines of 6.8% for the past five years show its products and services struggled to connect with the market during this cycle
2. Earnings per share have contracted by 42.7% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
3. Underwhelming 0.7% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging

Array’s stock price of $57.76 implies a valuation ratio of 26.3x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including AD in your portfolio.

SAIC (SAIC)

Trailing 12-Month Free Cash Flow Margin: 6.5%

With over five decades of experience supporting national security missions, Science Applications International Corporation (NASDAQ:SAIC) provides technical, engineering, and enterprise IT services primarily to U.S. government agencies and military branches.

Why Are We Out on SAIC?

1. Annual sales declines of 2.1% for the past two years show its products and services struggled to connect with the market during this cycle
2. Sales are projected to be flat over the next 12 months and imply weak demand

At $111.12 per share, SAIC trades at 12.4x forward P/E. Dive into our free research report to see why there are better opportunities than SAIC.

Darling Ingredients (DAR)

Trailing 12-Month Free Cash Flow Margin: 8.1%

Turning what others consider waste into valuable resources, Darling Ingredients (NYSE:DAR) collects and transforms animal by-products, used cooking oil, and other bio-nutrients into valuable ingredients for food, feed, fuel, and industrial applications.

Why Do We Think Twice About DAR?

1. Sales tumbled by 1.3% annually over the last three years, showing consumer trends are working against its favor
2. Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 23.5%
3. Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 42.7% annually, worse than its revenue

Darling Ingredients is trading at $39.62 per share, or 20.3x forward P/E. If you’re considering DAR for your portfolio, see our FREE research report to learn more.

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