3 Cash-Producing Stocks We Find Risky
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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Warner Bros. Discovery (WBD)
Trailing 12-Month Free Cash Flow Margin: 6%
Formed from the merger of WarnerMedia and Discovery, Warner Bros. Discovery (NASDAQ:WBD) is a multinational media and entertainment company, offering television networks, streaming services, and film and television production.
Why Do We Steer Clear of WBD?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 5.7% over the last five years was below our standards for the consumer discretionary sector
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Improving returns on capital suggest management is identifying more profitable investments
Warner Bros. Discovery is trading at $28.07 per share, or 151.3x forward P/E. Check out our free in-depth research report to learn more about why WBD doesn’t pass our bar.
Zimmer Biomet (ZBH)
Trailing 12-Month Free Cash Flow Margin: 14.1%
With a history dating back to 1927 and a presence in over 100 countries worldwide, Zimmer Biomet (NYSE:ZBH) designs and manufactures orthopedic products including knee and hip replacements, surgical tools, and robotic technologies for joint reconstruction and spine surgeries.
Why Is ZBH Not Exciting?
- Sales trends were unexciting over the last five years as its 4.4% annual growth was below the typical healthcare company
- Annual earnings per share growth of 2.4% underperformed its revenue over the last five years, showing its incremental sales were less profitable
- ROIC of 4.2% reflects management’s challenges in identifying attractive investment opportunities
At $93.07 per share, Zimmer Biomet trades at 10.8x forward P/E. Read our free research report to see why you should think twice about including ZBH in your portfolio.
Avantor (AVTR)
Trailing 12-Month Free Cash Flow Margin: 6.9%
With roots dating back to 1904 and embedded in virtually every stage of scientific research and production, Avantor (NYSE:AVTR) provides mission-critical products, materials, and services to customers in biopharma, healthcare, education, and advanced technology industries.
Why Are We Bearish on AVTR?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Inability to adjust its cost structure while its revenue declined over the last five years led to a 5.9 percentage point drop in the company’s adjusted operating margin
- Sales were less profitable over the last five years as its earnings per share fell by 7.8% annually, worse than its revenue declines
Avantor’s stock price of $14.82 implies a valuation ratio of 17.2x forward P/E. Check out our free in-depth research report to learn more about why AVTR doesn’t pass our bar.
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-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.