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3 Cash-Producing Stocks with Open Questions
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. Keeping that in mind, here are three cash-producing companies to steer clear of and a few better alternatives.
American Eagle (AEO)
Trailing 12-Month Free Cash Flow Margin: 2.9%
With a heavy focus on denim, American Eagle Outfitters (NYSE:AEO) is a specialty retailer offering an assortment of apparel and accessories to young adults.
Why Is AEO Not Exciting?
- Sales trends were unexciting over the last three years as its 2.2% annual growth was below the typical consumer retail company
- Conservative approach to adding new stores shows management is focused on improving existing location performance
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam
At $26.32 per share, American Eagle trades at 16.9x forward P/E. Read our free research report to see why you should think twice about including AEO in your portfolio.
Vontier (VNT)
Trailing 12-Month Free Cash Flow Margin: 13.6%
A spin-off of a spin-off, Vontier (NYSE:VNT) provides electronic products and systems to the transportation, automotive, and manufacturing sectors.
Why Should You Sell VNT?
- 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
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Waning returns on capital imply its previous profit engines are losing steam
Vontier is trading at $38.12 per share, or 11.5x forward P/E. Dive into our free research report to see why there are better opportunities than VNT.
Select Medical (SEM)
Trailing 12-Month Free Cash Flow Margin: 3.2%
With a nationwide network spanning 46 states and over 2,700 healthcare facilities, Select Medical (NYSE:SEM) operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers across the United States.
Why Are We Out on SEM?
- Flat admissions over the past two years indicate demand is soft and that the company may need to revise its strategy
- Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 11.7% annually
- Eroding returns on capital suggest its historical profit centers are aging
Select Medical’s stock price of $14.77 implies a valuation ratio of 12.3x forward P/E. To fully understand why you should be careful with SEM, check out our full research report (it’s free for active Edge members).
Stocks We Like More
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in 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 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-micro-cap company Tecnoglass (+1,754% 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.