A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.

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.

ZoomInfo (ZI)

Trailing 12-Month Free Cash Flow Margin: 37.1%

Founded in 2007 as DiscoveryOrg and renamed after a merger in 2019, ZoomInfo (NASDAQ: ZI) is a software as a service product that provides sales departments with access to a database of prospective clients.

Why Are We Wary of ZI?

1. Flat billings over the last year suggest it may need to improve its products, pricing, or go-to-market strategy to reinvigorate demand
2. Drawn-out sales process reflects its software’s integration hurdles with enterprise clients, restraining customer growth potential
3. Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 10.3 percentage points

At $10.28 per share, ZoomInfo trades at 2.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ZI.

Texas Instruments (TXN)

Trailing 12-Month Free Cash Flow Margin: 9%

Headquartered in Dallas, Texas since the 1950s, Texas Instruments (NASDAQ: TXN) is the world’s largest producer of analog semiconductors.

Why Is TXN Not Exciting?

1. Annual sales declines of 5.9% for the past two years show its products and services struggled to connect with the market during this cycle
2. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 11.4 percentage points
3. 29.7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

Texas Instruments’s stock price of $187.25 implies a valuation ratio of 30.8x forward P/E. If you’re considering TXN for your portfolio, see our FREE research report to learn more.

CarGurus (CARG)

Trailing 12-Month Free Cash Flow Margin: 24.9%

Bringing transparency to a sometimes opaque process, CarGurus (NASDAQ: CARG) is a digital marketplace where auto dealers can connect with potential customers and where car buyers can browse, purchase, and obtain financing.

Why Do We Think Twice About CARG?

1. Products and services have few die-hard fans as sales have declined by 15.1% annually over the last three years
2. May need to improve its platform and marketing strategy as its 1.7% average growth in paying dealers underwhelmed
3. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.3%

CarGurus is trading at $29.50 per share, or 9.3x forward EV/EBITDA. Check out our free in-depth research report to learn more about why CARG doesn’t pass our bar.

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