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. Keeping that in mind, here are three cash-producing companies to steer clear of and a few better alternatives.
Procore Technologies (PCOR)
Trailing 12-Month Free Cash Flow Margin: 16.3%
With a mission to build software for the people that build the world, Procore Technologies (NYSE: PCOR) provides cloud-based software that enables owners, contractors, and other stakeholders to collaborate and manage construction projects from any device.
Why Does PCOR Give Us Pause?
- Customers were hesitant to make long-term commitments to its software as its 14.8% average ARR growth over the last year was sluggish
- Estimated sales growth of 12.9% for the next 12 months implies demand will slow from its two-year trend
- Operating margin expanded by 2.4 percentage points over the last year as it scaled and became more efficient
Procore Technologies is trading at $51.51 per share, or 5.4x forward price-to-sales. If you’re considering PCOR for your portfolio, see our FREE research report to learn more.
Columbia Sportswear (COLM)
Trailing 12-Month Free Cash Flow Margin: 6.4%
Originally founded as a hat store in 1938, Columbia Sportswear (NASDAQ: COLM) is a manufacturer of outerwear, sportswear, and footwear designed for outdoor enthusiasts.
Why Do We Avoid COLM?
- Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
- Free cash flow margin is expected to remain in place over the coming year
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Columbia Sportswear’s stock price of $62.65 implies a valuation ratio of 18.7x forward P/E. To fully understand why you should be careful with COLM, check out our full research report (it’s free).
Martin Marietta Materials (MLM)
Trailing 12-Month Free Cash Flow Margin: 14.9%
Operating one of North America's largest networks of quarries, including 14 underground mines, Martin Marietta Materials (NYSE: MLM) is a natural resource-based building materials company that supplies aggregates, cement, and other construction materials for infrastructure and building projects.
Why Is MLM Not Exciting?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.7% annually over the last two years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its falling returns suggest its earlier profit pools are drying up
At $671.32 per share, Martin Marietta Materials trades at 32.6x forward P/E. Dive into our free research report to see why there are better opportunities than MLM.
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