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. That said, here are three cash-producing companies to steer clear of and a few better alternatives.

Zoom (ZM)

Trailing 12-Month Free Cash Flow Margin: 38.8%

Started by Eric Yuan who once ran engineering for Cisco’s video conferencing business, Zoom (NASDAQ:ZM) offers an easy to use, cloud-based platform for video conferencing, audio conferencing and screen sharing.

Why Does ZM Fall Short?

ARR growth averaged a weak 3.1% over the last year, suggesting that competition is pulling some attention away from its software Estimated sales growth of 2.5% for the next 12 months implies demand will slow from its three-year trend Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 5 percentage points over the next year

At $73.59 per share, Zoom trades at 4.8x forward price-to-sales. To fully understand why you should be careful with ZM, check out our full research report (it’s free).

AdaptHealth (AHCO)

Trailing 12-Month Free Cash Flow Margin: 7.2%

With a network of approximately 680 locations serving patients across all 50 states, AdaptHealth (NASDAQ:AHCO) provides home medical equipment, supplies, and related services to patients with chronic conditions like sleep apnea, diabetes, and respiratory disorders.

Why Does AHCO Worry Us?

Sales trends were unexciting over the last two years as its 4.8% annual growth was below the typical healthcare company ROIC of 2.4% reflects management’s challenges in identifying attractive investment opportunities, and its decreasing returns suggest its historical profit centers are aging

AdaptHealth’s stock price of $7.82 implies a valuation ratio of 7.5x forward price-to-earnings. If you’re considering AHCO for your portfolio, see our FREE research report to learn more.

Connection (CNXN)

Trailing 12-Month Free Cash Flow Margin: 5.9%

Starting as a small computer products seller in 1982 and evolving into a Fortune 1000 company, Connection (NASDAQ:CNXN) is a technology solutions provider that helps businesses and government agencies design, purchase, implement, and manage their IT infrastructure and systems.

Why Should You Dump CNXN?

Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.3% annually over the last two years Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term Low free cash flow margin of 3.2% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

Story Continues

Connection is trading at $60.40 per share, or 16.9x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than CNXN.

Stocks We Like More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out 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 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.

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