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.
Kraft Heinz (KHC)
Trailing 12-Month Free Cash Flow Margin: 14.4%
The result of a 2015 mega-merger between Kraft and Heinz, Kraft Heinz (NASDAQ: KHC) is a packaged foods giant whose products span coffee to cheese to packaged meat.
Why Do We Pass on KHC?
- Shrinking unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
- Efficiency has decreased over the last year as its operating margin fell by 34.6 percentage points
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
At $24.28 per share, Kraft Heinz trades at 9.8x forward P/E. Check out our free in-depth research report to learn more about why KHC doesn’t pass our bar.
Norfolk Southern (NSC)
Trailing 12-Month Free Cash Flow Margin: 19.7%
Starting with a single route from Virginia to North Carolina, Norfolk Southern (NYSE: NSC) is a freight transportation company operating a major railroad network across the eastern United States.
Why Should You Sell NSC?
- Weak unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Earnings per share were flat over the last two years and fell short of the peer group average
- Free cash flow margin shrank by 6.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Norfolk Southern is trading at $282.90 per share, or 22.2x forward P/E. To fully understand why you should be careful with NSC, check out our full research report (it’s free for active Edge members).
Avantor (AVTR)
Trailing 12-Month Free Cash Flow Margin: 8%
With roots dating back to 1904 and embedded in virtually every stage of scientific research and production, Avantor (NYSE: AVTR) provides mission-critical products, materials, and services to customers in biopharma, healthcare, education, and advanced technology industries.
Why Does AVTR Give Us Pause?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Avantor’s stock price of $11.57 implies a valuation ratio of 13.1x forward P/E. If you’re considering AVTR for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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Don’t let fear keep you from great opportunities and take a look at Top 6 Stocks for this week. 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).
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