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.
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 to avoid and some better opportunities instead.
Rush Street Interactive (RSI)
Trailing 12-Month Free Cash Flow Margin: 10.7%
Specializing in online casino gaming and sports betting, Rush Street Interactive (NYSE: RSI) is an operator of digital gaming platforms.
Why Are We Cautious About RSI?
- Subpar operating margin of 0.5% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
At $14.30 per share, Rush Street Interactive trades at 43.4x forward P/E. To fully understand why you should be careful with RSI, check out our full research report (it’s free).
Bright Horizons (BFAM)
Trailing 12-Month Free Cash Flow Margin: 7.9%
Founded in 1986, Bright Horizons (NYSE: BFAM) is a global provider of child care, early education, and workforce support solutions.
Why Should You Sell BFAM?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Incremental sales over the last five years were less profitable as its earnings per share were flat while its revenue grew
- Underwhelming 4.3% return on capital reflects management’s difficulties in finding profitable growth opportunities
Bright Horizons is trading at $122.77 per share, or 29.5x forward P/E. Dive into our free research report to see why there are better opportunities than BFAM.
CSG (CSGS)
Trailing 12-Month Free Cash Flow Margin: 12.9%
Powering billions of critical customer interactions annually, CSG Systems (NASDAQ: CSGS) provides cloud-based software platforms that help companies manage customer interactions, process payments, and monetize their services.
Why Do We Steer Clear of CSGS?
- Annual revenue growth of 3.4% over the last two years was below our standards for the business services sector
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.5%
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
CSG’s stock price of $63.23 implies a valuation ratio of 13.3x forward P/E. If you’re considering CSGS for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
