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3 Cash-Producing Stocks with Questionable Fundamentals
A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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.
RingCentral (RNG)
Trailing 12-Month Free Cash Flow Margin: 18.8%
Founded in 1999 during the dot-com era, RingCentral (NYSE:RNG) provides software as a service that unifies phone, text, fax, video calls and chat in one platform.
Why Does RNG Give Us Pause?
- Offerings struggled to generate meaningful interest as its average billings growth of 6.7% over the last year did not impress
- Estimated sales growth of 5% for the next 12 months implies demand will slow from its three-year trend
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
At $27.06 per share, RingCentral trades at 0.9x forward price-to-sales. Read our free research report to see why you should think twice about including RNG in your portfolio.
Arhaus (ARHS)
Trailing 12-Month Free Cash Flow Margin: 3.7%
With an aesthetic that features natural materials such as reclaimed wood, Arhaus (NASDAQ:ARHS) is a high-end furniture retailer that sells everything from sofas to rugs to bookcases.
Why Do We Think Twice About ARHS?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Revenue base of $1.29 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 5 percentage points
Arhaus is trading at $8.87 per share, or 17.4x forward P/E. To fully understand why you should be careful with ARHS, check out our full research report (it’s free).
Leslie's (LESL)
Trailing 12-Month Free Cash Flow Margin: 2.6%
Named after founder Philip Leslie, who established the company in 1963, Leslie’s (NASDAQ:LESL) is a retailer that sells pool and spa supplies, equipment, and maintenance services.
Why Should You Sell LESL?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Falling earnings per share over the last four years has some investors worried as stock prices ultimately follow EPS over the long term
- High net-debt-to-EBITDA ratio of 12× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Leslie’s stock price of $0.58 implies a valuation ratio of 8.1x forward P/E. If you’re considering LESL for your portfolio, see our FREE research report to learn more.
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 Strong Momentum Stocks for this week. 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.