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.
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 avoid and some better opportunities instead.
Semrush (SEMR)
Trailing 12-Month Free Cash Flow Margin: 9.7%
Born from the need to make sense of the complex digital marketing landscape, Semrush (NYSE: SEMR) is a software-as-a-service platform that helps companies improve their online visibility, analyze digital marketing efforts, and optimize content across search engines and social media.
Why Does SEMR Give Us Pause?
- Customers generally do not adopt complementary products as its 106% net revenue retention rate lags behind the industry standard
- Operating margin fell by 4.3 percentage points over the last year as it prioritized growth over profits
- Poor free cash flow margin of 9.7% for the last year limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Semrush’s stock price of $11.81 implies a valuation ratio of 3.6x forward price-to-sales. Check out our free in-depth research report to learn more about why SEMR doesn’t pass our bar.
Constellation Brands (STZ)
Trailing 12-Month Free Cash Flow Margin: 18.8%
With a presence in more than 100 countries, Constellation Brands (NYSE: STZ) is a globally renowned producer and marketer of beer, wine, and spirits.
Why Are We Hesitant About STZ?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Forecasted revenue decline of 3.1% for the upcoming 12 months implies demand will fall off a cliff
- 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
Constellation Brands is trading at $155.24 per share, or 13.3x forward P/E. Read our free research report to see why you should think twice about including STZ in your portfolio.
Planet Fitness (PLNT)
Trailing 12-Month Free Cash Flow Margin: 19.2%
Founded by two brothers who purchased a struggling gym, Planet Fitness (NYSE: PLNT) is a gym franchise that caters to casual fitness users by providing a friendly and inclusive atmosphere.
Why Do We Think PLNT Will Underperform?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores
- Free cash flow margin is forecasted to shrink by 2.6 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $80.17 per share, Planet Fitness trades at 24.3x forward P/E. If you’re considering PLNT for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
