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.

Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here are three cash-producing companies to avoid and some better opportunities instead.

Kimberly-Clark (KMB)

Trailing 12-Month Free Cash Flow Margin: 12.1%

Originally founded as a Wisconsin paper mill in 1872, Kimberly-Clark (NYSE:KMB) is now a household products powerhouse known for personal care and tissue products.

Why Does KMB Worry Us?

1. Flat unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
2. Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
3. Free cash flow margin has stayed in place over the last year

Kimberly-Clark is trading at $133.18 per share, or 17.4x forward price-to-earnings. Read our free research report to see why you should think twice about including KMB in your portfolio, it’s free.

Luxfer (LXFR)

Trailing 12-Month Free Cash Flow Margin: 10.4%

With its magnesium alloys used in the construction of the famous Spirit of St. Louis aircraft, Luxfer (NYSE:LXFR) offers specialized materials, components, and gas containment devices to various industries.

Why Do We Avoid LXFR?

1. Sales tumbled by 3.2% annually over the last one years, showing market trends are working against its favor during this cycle
2. Estimated sales for the next 12 months are flat and imply a softer demand environment
3. Flat earnings per share over the last five years underperformed the sector average

Luxfer’s stock price of $10.55 implies a valuation ratio of 9.7x forward price-to-earnings. To fully understand why you should be careful with LXFR, check out our full research report (it’s free).

Crane NXT (CXT)

Trailing 12-Month Free Cash Flow Margin: 12.5%

Born from a corporate transformation completed in 2023, Crane NXT (NYSE:CXT) provides specialized technology solutions for payment processing, banknote security, and authentication systems for financial institutions and businesses.

Why Is CXT Risky?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Estimated sales growth of 2.2% for the next 12 months implies demand will slow from its two-year trend
3. Earnings per share were flat over the last two years while its revenue grew, showing its incremental sales were less profitable

At $46.88 per share, Crane NXT trades at 10.6x forward price-to-earnings. If you’re considering CXT for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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