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.
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 to steer clear of and a few better alternatives.
Deere (DE)
Trailing 12-Month Free Cash Flow Margin: 14.3%
Revolutionizing agriculture with the first self-polishing cast-steel plow in the 1800s, Deere (NYSE: DE) manufactures and distributes advanced agricultural, construction, forestry, and turf care equipment.
Why Is DE Risky?
- Annual sales declines of 10.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Waning returns on capital imply its previous profit engines are losing steam
At $592.35 per share, Deere trades at 29.5x forward P/E. To fully understand why you should be careful with DE, check out our full research report (it’s free).
Pediatrix Medical Group (MD)
Trailing 12-Month Free Cash Flow Margin: 12.3%
With a network of approximately 2,620 affiliated physicians caring for some of the most vulnerable patients, Pediatrix Medical Group (NYSE: MD) provides specialized physician services focused on neonatal, maternal-fetal, pediatric cardiology and other pediatric subspecialty care across 37 states.
Why Is MD Not Exciting?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.7% annually over the last two years
- Sales are projected to be flat over the next 12 months and imply weak demand
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Pediatrix Medical Group is trading at $26.11 per share, or 11.3x forward P/E. Dive into our free research report to see why there are better opportunities than MD.
Weatherford (WFRD)
Trailing 12-Month Free Cash Flow Margin: 11.4%
Operating in roughly 75 countries with over 300 facilities worldwide, Weatherford (NASDAQ: WFRD) provides equipment and services for drilling, completing, and maintaining oil and gas wells.
Why Are We Wary of WFRD?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 4.1% annually over the last ten years
- Gross margin of 32% reflects its high production costs and unfavorable asset base
Weatherford’s stock price of $85.52 implies a valuation ratio of 11.6x forward P/E. Read our free research report to see why you should think twice about including WFRD in your portfolio.
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