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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.

Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.

Wayfair (W)

Trailing 12-Month Free Cash Flow Margin: 1.2%

Founded in 2002 by Niraj Shah, Wayfair (NYSE:W) is a leading online retailer of mass-market home goods in the US, UK, Canada, and Germany.

Why Do We Think W Will Underperform?

1. Active Customers have declined by 2.1% annually over the last two years, suggesting it may need to revamp its features or user experience to stay competitive

2. Gross margin of 30.5% reflects its high servicing costs

3. 5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

Wayfair is trading at $38.10 per share, or 9.8x forward EV/EBITDA. To fully understand why you should be careful with W, check out our full research report (it’s free).

Carter's (CRI)

Trailing 12-Month Free Cash Flow Margin: 7.9%

Rumored to sell more than 10 products for every child born in the United States, Carter's (NYSE:CRI) is an American designer and marketer of children's apparel.

Why Are We Out on CRI?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its stores

2. Sales are projected to tank by 1.1% over the next 12 months as its demand continues evaporating

3. Eroding returns on capital suggest its historical profit centers are aging

Carter’s stock price of $35.81 implies a valuation ratio of 10.1x forward P/E. Read our free research report to see why you should think twice about including CRI in your portfolio, it’s free.

Flex (FLEX)

Trailing 12-Month Free Cash Flow Margin: 4.1%

Originally known as Flextronics until its 2016 rebranding, Flex (NASDAQ:FLEX) is a global manufacturing partner that designs, engineers, and builds products for companies across industries from medical devices to solar trackers.

Why Are We Wary of FLEX?

1. Sales tumbled by 4.8% annually over the last two years, showing market trends are working against its favor during this cycle

2. Demand will likely be weak over the next 12 months as Wall Street expects flat revenue

3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital