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 avoid and some better opportunities instead.
Wendy's (WEN)
Trailing 12-Month Free Cash Flow Margin: 11%
Founded by Dave Thomas in 1969, Wendy’s (NASDAQ: WEN) is a renowned fast-food chain known for its fresh, never-frozen beef burgers, flavorful menu options, and commitment to quality.
Why Do We Think Twice About WEN?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new restaurants
- Projected sales are flat for the next 12 months, implying demand will slow from its six-year trend
- 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Wendy's is trading at $11.56 per share, or 11.4x forward P/E. Dive into our free research report to see why there are better opportunities than WEN.
Hilton (HLT)
Trailing 12-Month Free Cash Flow Margin: 17.9%
Founded in 1919, Hilton Worldwide (NYSE: HLT) is a global hospitality company with a portfolio of hotel brands.
Why Are We Wary of HLT?
- Annual sales growth of 4.3% over the last five years lagged behind its consumer discretionary peers as its large revenue base made it difficult to generate incremental demand
- Softer revenue per room over the past two years suggests it might have to invest in new amenities such as restaurants and bars to attract customers
- Estimated sales growth of 6.8% for the next 12 months implies demand will slow from its two-year trend
At $249.47 per share, Hilton trades at 30.5x forward P/E. To fully understand why you should be careful with HLT, check out our full research report (it’s free).
Korn Ferry (KFY)
Trailing 12-Month Free Cash Flow Margin: 11.5%
With clients including 97% of the S&P 100 and operations in 103 offices across 51 countries, Korn Ferry (NYSE: KFY) is a global consulting firm that helps organizations design optimal structures, recruit talent, develop leaders, and create effective compensation strategies.
Why Do We Pass on KFY?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2% annually over the last two years
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 1.4%
- Sales were less profitable over the last two years as its earnings per share fell by 7.6% annually, worse than its revenue declines
Korn Ferry’s stock price of $67.79 implies a valuation ratio of 13.2x forward P/E. Check out our free in-depth research report to learn more about why KFY doesn’t pass our bar.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free.
