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 that don’t make the cut and some better opportunities instead.
Driven Brands (DRVN)
Trailing 12-Month Free Cash Flow Margin: 1.5%
With approximately 5,000 locations across 49 U.S. states and 13 other countries, Driven Brands (NASDAQ:DRVN) operates a network of automotive service centers offering maintenance, car washes, paint, collision repair, and glass services across North America.
Why Are We Hesitant About DRVN?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Negative returns on capital show management lost money while trying to expand the business, and its shrinking returns suggest its past profit sources are losing steam
Driven Brands’s stock price of $13.90 implies a valuation ratio of 11.8x forward P/E. Check out our free in-depth research report to learn more about why DRVN doesn’t pass our bar.
MillerKnoll (MLKN)
Trailing 12-Month Free Cash Flow Margin: 2.2%
Created through the 2021 merger of industry icons Herman Miller and Knoll, MillerKnoll (NASDAQ:MLKN) designs, manufactures, and distributes interior furnishings for offices, healthcare facilities, educational settings, and homes worldwide.
Why Is MLKN Not Exciting?
- Muted 1.4% annual revenue growth over the last two years shows its demand lagged behind its business services peers
- Issuance of new shares over the last five years caused its earnings per share to fall by 7.9% annually while its revenue grew
- Poor free cash flow margin of 2.4% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
At $15.83 per share, MillerKnoll trades at 8x forward P/E. If you’re considering MLKN for your portfolio, see our FREE research report to learn more.
CONMED (CNMD)
Trailing 12-Month Free Cash Flow Margin: 9%
With over five decades of experience in surgical innovation since its founding in 1970, CONMED (NYSE:CNMD) develops and manufactures medical devices and equipment for surgical procedures, specializing in orthopedic and general surgery products.
Why Does CNMD Worry Us?
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Modest revenue base of $1.37 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Projected sales are flat for the next 12 months, implying demand will slow from its two-year trend
CONMED is trading at $36.63 per share, or 7x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including CNMD in your portfolio.
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