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3 Cash-Producing Stocks with Warning Signs
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 to avoid and some better opportunities instead.
DraftKings (DKNG)
Trailing 12-Month Free Cash Flow Margin: 11.3%
Getting its start in daily fantasy sports, DraftKings (NASDAQ:DKNG) is a digital sports entertainment and gaming company.
Why Is DKNG Risky?
- Sales trends were unexciting over the last two years as its 24.3% annual growth was below the typical consumer discretionary company
- Historical operating margin losses point to an inefficient cost structure
- Free cash flow margin is expected to remain in place over the coming year
DraftKings is trading at $23.90 per share, or 20.6x forward P/E. If you’re considering DKNG for your portfolio, see our FREE research report to learn more.
Sally Beauty (SBH)
Trailing 12-Month Free Cash Flow Margin: 6.1%
Catering to both everyday consumers as well as salon professionals, Sally Beauty (NYSE:SBH) is a retailer that sells salon-quality beauty products such as makeup and haircare products.
Why Does SBH Give Us Pause?
- Failure to add new stores points to soft demand and a focus on boosting sales at current locations
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Subscale operations are evident in its revenue base of $3.73 billion, meaning it has fewer distribution channels than its larger rivals
Sally Beauty’s stock price of $14.88 implies a valuation ratio of 7x forward P/E. Read our free research report to see why you should think twice about including SBH in your portfolio.
Nutanix (NTNX)
Trailing 12-Month Free Cash Flow Margin: 28%
Originally pioneering hyperconverged infrastructure to break down traditional data center silos, Nutanix (NASDAQ:NTNX) provides a unified software platform that enables organizations to run applications and manage data across private, public, and hybrid cloud environments.
Why Are We Cautious About NTNX?
- Products, pricing, or go-to-market strategy may need some adjustments as its 13.5% average billings growth over the last year was weak
- Estimated sales growth of 12.9% for the next 12 months implies demand will slow from its two-year trend
- Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
At $53.87 per share, Nutanix trades at 5.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than NTNX.
Stocks We Like More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.