3 Cash-Producing Stocks with Questionable Fundamentals

A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.

Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here are three cash-producing companies to steer clear of and a few better alternatives.

Sirius XM (SIRI)

Trailing 12-Month Free Cash Flow Margin: 11.7%

Known for its commercial-free music channels, Sirius XM (NASDAQ:SIRI) is a broadcasting company that provides satellite radio and online radio services across North America.

Why Do We Avoid SIRI?

1. Performance surrounding its core subscribers has lagged its peers
2. Earnings per share fell by 44.6% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. Diminishing returns on capital suggest its earlier profit pools are drying up

At $21.10 per share, Sirius XM trades at 6.8x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than SIRI.

Lindblad Expeditions (LIND)

Trailing 12-Month Free Cash Flow Margin: 9.1%

Founded by explorer Sven-Olof Lindblad in 1979, Lindblad Expeditions (NASDAQ:LIND) offers cruising experiences to remote destinations in partnership with National Geographic.

Why Do We Steer Clear of LIND?

1. Sales trends were unexciting over the last five years as its 13.4% annual growth was below the typical consumer discretionary company
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 73% annually
3. Free cash flow margin is forecasted to shrink by 3.8 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors

Lindblad Expeditions is trading at $8.43 per share, or 4.3x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including LIND in your portfolio.

Novanta (NOVT)

Trailing 12-Month Free Cash Flow Margin: 14.9%

Originally a pioneer in the laser scanning industry during the late 1960s, Novanta (NASDAQ:NOVT) offers medicine and manufacturing technology to the medical, life sciences, and manufacturing industries.

Why Are We Wary of NOVT?

1. Sales trends were unexciting over the last two years as its 5% annual growth was below the typical industrials company
2. Earnings per share were flat over the last two years and fell short of the peer group average
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 7.1 percentage points

Novanta’s stock price of $114.99 implies a valuation ratio of 30.4x forward price-to-earnings. Check out our free in-depth research report to learn more about why NOVT doesn’t pass our bar.

Stocks We Like More

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