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.

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 that don’t make the cut and some better opportunities instead.

Carrier Global (CARR)

Trailing 12-Month Free Cash Flow Margin: 2.4%

Founded by the inventor of air conditioning, Carrier Global (NYSE: CARR) manufactures heating, ventilation, air conditioning, and refrigeration products.

Why Does CARR Fall Short?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Free cash flow margin dropped by 5.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Carrier Global’s stock price of $67.51 implies a valuation ratio of 20.4x forward P/E. To fully understand why you should be careful with CARR, check out our full research report (it’s free).

XPO (XPO)

Trailing 12-Month Free Cash Flow Margin: 2.8%

Owning a mobile game simulating freight operations for the Tour de France, XPO (NYSE: XPO) is a transportation company specializing in expedited shipping services.

Why Is XPO Risky?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.5% annually over the last five years
2. Flat earnings per share over the last two years lagged its peers
3. Free cash flow margin shrank by 7.2 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

At $118.79 per share, XPO trades at 29.2x forward P/E. Read our free research report to see why you should think twice about including XPO in your portfolio.

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 Should You Sell VZ?

1. Customer additions have disappointed over the past two years, indicating the company’s value proposition may not be resonating
2. Anticipated sales growth of 2.1% for the next year implies demand will be shaky
3. Projected 1.8 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position

Verizon is trading at $42.87 per share, or 9.1x forward P/E. Dive into our free research report to see why there are better opportunities than VZ.

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