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.
Luckily for you, we built StockStory to help you separate the good from the bad. That said, here are three cash-producing companies to steer clear of and a few better alternatives.
Vestis (VSTS)
Trailing 12-Month Free Cash Flow Margin: 1.1%
Operating a network of more than 350 facilities with 3,300 delivery routes serving customers weekly, Vestis (NYSE: VSTS) provides uniform rentals, workplace supplies, and facility services to over 300,000 business locations across the United States and Canada.
Why Should You Dump VSTS?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.5% annually over the last two years
- 9.8 percentage point decline in its free cash flow margin over the last four years reflects the company’s increased investments to defend its market position
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $4.80 per share, Vestis trades at 14.7x forward P/E. Check out our free in-depth research report to learn more about why VSTS doesn’t pass our bar.
Verizon (VZ)
Trailing 12-Month Free Cash Flow Margin: 14.7%
Formed in 1984 as Bell Atlantic after the breakup of Bell System into seven companies, Verizon (NYSE: VZ) is a telecom giant providing a range of communications and internet services.
Why Do We Think VZ Will Underperform?
- Underwhelming customer growth over the past two years shows the company faced challenges in winning new contracts
- Estimated sales growth of 2.1% for the next 12 months is soft and implies weaker demand
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Verizon is trading at $40.43 per share, or 8.5x forward P/E. To fully understand why you should be careful with VZ, check out our full research report (it’s free for active Edge members).
Jazz Pharmaceuticals (JAZZ)
Trailing 12-Month Free Cash Flow Margin: 31%
Originally founded in 2003 and now headquartered in Ireland following a 2012 tax inversion merger, Jazz Pharmaceuticals (NASDAQGS:JAZZ) develops and markets medicines for sleep disorders, epilepsy, and cancer, with a focus on treatments for patients with limited therapeutic options.
Why Should You Sell JAZZ?
- Muted 4.2% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 25.4 percentage points
- Issuance of new shares over the last five years caused its earnings per share to fall by 12.1% annually while its revenue grew
Jazz Pharmaceuticals’s stock price of $132 implies a valuation ratio of 6.3x forward P/E. If you’re considering JAZZ for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out 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. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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