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. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.

Warner Bros. Discovery (WBD)

Trailing 12-Month Free Cash Flow Margin: 10.6%

Formed from the merger of WarnerMedia and Discovery, Warner Bros. Discovery (NASDAQ: WBD) is a multinational media and entertainment company, offering television networks, streaming services, and film and television production.

Why Are We Out on WBD?

1. Sales tumbled by 4.2% annually over the last two years, showing consumer trends are working against its favor
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 30.9% annually while its revenue grew
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

Warner Bros. Discovery’s stock price of $17.75 implies a valuation ratio of 4.4x forward EV-to-EBITDA. To fully understand why you should be careful with WBD, check out our full research report (it’s free).

Genco (GNK)

Trailing 12-Month Free Cash Flow Margin: 5.4%

Headquartered in NYC, Genco (NYSE: GNK) is a shipping company that transports dry bulk cargo along worldwide maritime routes.

Why Are We Wary of GNK?

1. Performance surrounding its owned vessels has lagged its peers
2. Earnings per share have dipped by 61.9% annually over the past two years, which is concerning because stock prices follow EPS over the long term
3. Free cash flow margin dropped by 26.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up

At $17.76 per share, Genco trades at 18.7x forward P/E. Check out our free in-depth research report to learn more about why GNK doesn’t pass our bar.

Avnet (AVT)

Trailing 12-Month Free Cash Flow Margin: 2.6%

With a century-long history of adapting to technological evolution, Avnet (NASDAQ: AVT) is a global electronic components distributor that connects manufacturers of semiconductors and other electronic parts with businesses that need these components.

Why Are We Cautious About AVT?

1. Annual sales declines of 8.5% for the past two years show its products and services struggled to connect with the market during this cycle
2. Earnings per share have contracted by 34.7% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Poor free cash flow margin of -0.1% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

Avnet is trading at $53.72 per share, or 10.4x forward P/E. Dive into our free research report to see why there are better opportunities than AVT.

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