Generating cash is essential for any business, but not all cash-rich companies are great investments. Some produce plenty of cash but fail to allocate it effectively, leading to missed opportunities.
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.
Qorvo (QRVO)
Trailing 12-Month Free Cash Flow Margin: 13%
Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.
Why Do We Pass on QRVO?
- 2.8% annual revenue growth over the last five years was slower than its semiconductor peers
- Efficiency has decreased over the last five years as its operating margin fell by 20 percentage points
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 14.7 percentage points
Qorvo is trading at $69.46 per share, or 12.8x forward P/E. Check out our free in-depth research report to learn more about why QRVO doesn’t pass our bar.
News Corp (NWSA)
Trailing 12-Month Free Cash Flow Margin: 7%
Established in 2013 after a restructuring, News Corp (NASDAQ:NWSA) is a multinational conglomerate known for its news publishing, broadcasting, digital media, and book publishing.
Why Do We Steer Clear of NWSA?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- ROIC of 6.1% reflects management’s challenges in identifying attractive investment opportunities
At $27.58 per share, News Corp trades at 30.4x forward P/E. Dive into our free research report to see why there are better opportunities than NWSA.
Merit Medical Systems (MMSI)
Trailing 12-Month Free Cash Flow Margin: 13%
Founded in 1987 and now offering over 1,700 patented products across global markets, Merit Medical Systems (NASDAQ:MMSI) manufactures and markets specialized medical devices used in minimally invasive procedures for cardiology, radiology, oncology, critical care, and endoscopy.
Why Does MMSI Give Us Pause?
- Muted 6.8% annual revenue growth over the last five years shows its demand lagged behind its healthcare peers
- Smaller revenue base of $1.39 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Merit Medical Systems’s stock price of $95.66 implies a valuation ratio of 25.5x forward P/E. To fully understand why you should be careful with MMSI, check out our full research report (it’s free).
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.