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 avoid and some better opportunities instead.
Foot Locker (FL)
Trailing 12-Month Free Cash Flow Margin: 1.3%
Known for store associates whose uniforms resemble those of referees, Foot Locker (NYSE:FL) is a specialty retailer that sells athletic footwear, clothing, and accessories.
Why Are We Out on FL?
- Ongoing store closures and lackluster same-store sales indicate sluggish demand and a focus on consolidation
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Foot Locker is trading at $11.80 per share, or 6.8x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than FL.
Zillow (ZG)
Trailing 12-Month Free Cash Flow Margin: 12.7%
Founded by Expedia co-founders Lloyd Frink and Rich Barton, Zillow (NASDAQ:ZG) is the leading U.S. online real estate marketplace.
Why Do We Think Twice About ZG?
- Products and services have few die-hard fans as sales have declined by 4% annually over the last five years
- Suboptimal cost structure is highlighted by its history of operating losses
- Negative returns on capital show management lost money while trying to expand the business
Zillow’s stock price of $64.87 implies a valuation ratio of 33.7x forward price-to-earnings. To fully understand why you should be careful with ZG, check out our full research report (it’s free).
Organon (OGN)
Trailing 12-Month Free Cash Flow Margin: 11.9%
Spun off from Merck in 2021 to create a company dedicated to addressing unmet needs in women's health, Organon (NYSE:OGN) is a global healthcare company focused on improving women's health through prescription therapies, medical devices, biosimilars, and established medicines.
Why Should You Sell OGN?
- Annual sales declines of 3.6% for the past five years show its products and services struggled to connect with the market during this cycle
- Adjusted operating margin declined by 17.3 percentage points over the last five years as its sales cratered
- Earnings per share have contracted by 19.8% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
At $12.20 per share, Organon trades at 3x forward price-to-earnings. Read our free research report to see why you should think twice about including OGN in your portfolio.
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 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.