A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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 that don’t make the cut and some better opportunities instead.
Asure Software (ASUR)
Trailing 12-Month Free Cash Flow Margin: 3.1%
Operating in the often-overlooked smaller metropolitan markets where HR expertise can be scarce, Asure Software (NASDAQ:ASUR) provides cloud-based human capital management software and services that help small and medium-sized businesses manage payroll, taxes, time tracking, and HR compliance.
Why Does ASUR Fall Short?
- Annual revenue growth of 14.3% over the last three years was below our standards for the software sector
- Offerings struggled to generate meaningful interest as its average billings growth of 7.1% over the last year did not impress
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 3.2 percentage points
Asure Software is trading at $8.40 per share, or 1.5x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ASUR.
LKQ (LKQ)
Trailing 12-Month Free Cash Flow Margin: 4.8%
A global distributor of vehicle parts and accessories, LKQ (NASDAQ:LKQ) offers its customers a comprehensive selection of high-quality, affordably priced automobile products.
Why Should You Dump LKQ?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Estimated sales growth of 1.2% for the next 12 months implies demand will slow from its two-year trend
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
LKQ’s stock price of $32.71 implies a valuation ratio of 8.8x forward P/E. Read our free research report to see why you should think twice about including LKQ in your portfolio.
Knowles (KN)
Trailing 12-Month Free Cash Flow Margin: 24.4%
With roots dating back to 1946 and a focus on components that must perform flawlessly in critical situations, Knowles (NYSE:KN) designs and manufactures specialized electronic components like high-performance capacitors, microphones, and speakers for medical technology, defense, and industrial applications.
Why Is KN Risky?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 5.3% annually over the last five years
- Revenue base of $563.1 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- ROIC of 7.8% reflects management’s challenges in identifying attractive investment opportunities, and its decreasing returns suggest its historical profit centers are aging
At $21.35 per share, Knowles trades at 17.6x forward P/E. If you’re considering KN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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