- PRICING
- LIVE QUOTES
- LEARN
- HELP
EN
3 Cash-Producing Stocks That Concern Us
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.
Coty (COTY)
Trailing 12-Month Free Cash Flow Margin: 5.4%
With a portfolio boasting many household brands, Coty (NYSE:COTY) is a beauty products powerhouse spanning cosmetics, fragrances, and skincare.
Why Is COTY Risky?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Estimated sales decline of 1.2% for the next 12 months implies a challenging demand environment
- Incremental sales over the last three years were much less profitable as its earnings per share fell by 29.3% annually while its revenue grew
At $2.69 per share, Coty trades at 8.4x forward P/E. Check out our free in-depth research report to learn more about why COTY doesn’t pass our bar.
Choice Hotels (CHH)
Trailing 12-Month Free Cash Flow Margin: 6.2%
With almost 100% of its properties under franchise agreements, Choice Hotels (NYSE:CHH) is a hotel franchisor known for its diverse brand portfolio including Comfort Inn, Quality Inn, and Clarion.
Why Are We Out on CHH?
- Revenue per room has disappointed over the past two years due to weaker trends in its daily rates and occupancy levels
- Poor free cash flow margin of 8.8% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Choice Hotels’s stock price of $111.36 implies a valuation ratio of 15.8x forward P/E. To fully understand why you should be careful with CHH, check out our full research report (it’s free).
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 Steer Clear of PLNT?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 4.8 percentage points over the next year
- Stagnant returns on capital show management has failed to improve the company’s business quality
Planet Fitness is trading at $55.99 per share, or 17.3x forward P/E. Read our free research report to see why you should think twice about including PLNT in your portfolio.
High-Quality Stocks for All Market Conditions
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.
Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum Stocks for Free HERE.
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-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.