3 Cash-Producing Stocks with Questionable Fundamentals
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 to avoid and some better opportunities instead.
Trailing 12-Month Free Cash Flow Margin: 1.3%
Known for store associates whose uniforms resemble those of referees, Foot Locker (NYSE:FL) is a specialty retailer that sells athletic footwear, clothing, and accessories.
Why Are We Out on FL?
Ongoing store closures and lackluster same-store sales indicate sluggish demand and a focus on consolidation
Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
6× net-debt-to-EBITDA ratio shows it's overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Foot Locker is trading at $11.80 per share, or 6.8x forward price-to-earnings. Read our free research report to see why you should think twice about including FL in your portfolio, it's free.
Trailing 12-Month Free Cash Flow Margin: 12.7%
Founded by Expedia co-founders Lloyd Frink and Rich Barton, Zillow (NASDAQ:ZG) is the leading U.S. online real estate marketplace.
Why Do We Think Twice About ZG?
Products and services have few die-hard fans as sales have declined by 4% annually over the last five years
Suboptimal cost structure is highlighted by its history of operating losses
Negative returns on capital show management lost money while trying to expand the business
Zillow's stock price of $64.87 implies a valuation ratio of 33.7x forward price-to-earnings. If you're considering ZG for your portfolio, see our FREE research report to learn more.
Trailing 12-Month Free Cash Flow Margin: 11.9%
Spun off from Merck in 2021 to create a company dedicated to addressing unmet needs in women's health, Organon (NYSE:OGN) is a global healthcare company focused on improving women's health through prescription therapies, medical devices, biosimilars, and established medicines.
Why Should You Sell OGN?
Annual sales declines of 3.6% for the past five years show its products and services struggled to connect with the market during this cycle
Adjusted operating margin declined by 17.3 percentage points over the last five years as its sales cratered
Earnings per share have contracted by 19.8% annually over the last four years, a headwind for returns as stock prices often echo long-term EPS performance
At $12.20 per share, Organon trades at 3x forward price-to-earnings. Check out our free in-depth research report to learn more about why OGN doesn't pass our bar.
Donald Trump's victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like 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 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
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Yahoo
19 minutes ago
- Yahoo
Veteran analyst sends surprising message on stocks, bonds, and gold
Veteran analyst sends surprising message on stocks, bonds, and gold originally appeared on TheStreet. The stock market rally has been impressive. Since President Donald Trump paused most reciprocal tariffs on April 9, only days after announcing them, stocks have soared. The S&P 500 has gained about 20%, while the tech-stock heavy Nasdaq Composite is up 27%. Those returns in such a short span significantly outpace the average 10% annual return for stocks since 1928. Stocks haven't been the only winner. Gold has also notched impressive returns this year. The yellow metal has rallied 30% in 2025 as investors have sought to insulate risk amid growing economic concerns surrounding debt and the impact of tariffs on one big disappointment this year: Treasury bonds. They've tumbled, sending bond yields soaring, as global investors have soured on financing America's insatiable appetite for spending. The market action has captured the attention of many, including veteran commodities and futures analyst Carley Garner. Garner has been professionally navigating these markets for 20 years, and her track record includes accurately predicting the stock rally in 2023 and last year's decline in oil prices. Garner updated her outlook on stocks, gold, and bonds, and her takeaway may surprise you. Stocks' rally since the lows in early April likely surprised many, given significant economic risks remain. While inflation has retreated below 3% from over 8% in 2022, price increases over the past years have cash-strapped consumers, causing them to shift spending from discretionary purchases to problem has been compounded by an uptick in unemployment, which has increased to 4.2% from 3.4% in 2023, partly due to higher interest rates designed to crimp inflation. According to Challenger, Gray, & Christmas, U.S. companies have laid off 696,309 workers this year through May, up 80% from one year ago. The situation isn't likely to get much better for workers. While Trump paused many reciprocal tariffs in April, key tariffs remain, including a 25% tariff on Canada and Mexico and autos, a 10% tariff on all imports, and 30% tariff on China (total tariffs on China, including those put in place during President Trump's first term exceed 50%). The remaining tariffs, and potential for more after the 90-day pause expires, could fuel inflation later this year, particularly in retail, which sources everything from clothing to electronics from overseas. The risk of inflation alongside job losses suggests America could go headlong into a period of stagflation or recession. Despite those risks, the S&P 500 and Nasdaq Composite have notched remarkable gains. Investors who quickly sold amid tariff announcements earlier this year have been left behind, and as a result, they're buying every dip to regain their exposure. One major exception? Warren Buffett. The Oracle of Omaha has increased Berkshire Hathaway's cash position, choosing to collect guaranteed fixed income from T-bills rather than leap back into the stock market amid the uncertainty. Exiting the first quarter, Warren Buffett's cash stockpile eclipsed $347 billion, a record, and more than double the levels exiting 2023. The rallies in stocks and gold may continue, but like Buffett, Carley Garner doesn't see the risk-to-reward as overly compelling in stocks. She's also become bearish on gold relative to bonds, given that gold has moved significantly higher and, unlike bonds, doesn't pay dividends. "While I believe the S&P 500 can easily reach 6300 to 6400, the downside risk might be outsized relative to the potential reward," wrote Garner on TheStreet Pro. "Since 1928, the S&P 500 has returned an average annual rate of 10%; however, in recent years, the average return has been abnormally high, at approximately 14%. There is a good chance that, like the dot-com era, we have pulled forward gains and could be on the verge of a 'returnless' market in the coming years." Garner points to a key measure favored by Warren Buffett regarding stock market valuation as evidence that stocks are over their skis. More Experts: Fed official sends strong message about interest-rate cuts Billionaire fund manager sends surprising message on trade deficit Hedge-fund manager sees U.S. becoming Greece "The Warren Buffett Indicator measures the total stock market value vs. the GDP," wrote Garner. "Since 1950, the stock market has only been this overstretched a few other times. Not surprisingly, the dot-com bubble was one of those times. Historically, this indicator has not been the time to hit the gas on risk assets. It has been the opposite." The arguable overvaluation of stocks could mean the risk of a reckoning is high enough to concentrate on other assets. However, gold may not be the best bet, given it's already made a big move higher. Instead, it's Treasury bonds that Garner believes offer the best chance for upside. "There is only one [of these assets] near a two-decade low in valuation: Treasuries," writes Garner. "Except for some forms of real estate, it is the only asset that yields an attractive income stream. Lastly, Treasuries are the least risky asset class in the world but the market is treating the securities as anything but." Garner points out that people were flocking to own bonds with paltry yields only five years ago. Now, they're shunning yields near 4.5%. Many are hesitant to own bonds despite the high yields, fearing that bonds will continue to drop, sending yields even higher, as the U.S. debt load rises. While it's true that lower bond values could mean short-term losses, Garner views the risk of a U.S. default as unlikely, suggesting that those holding Treasuries to maturity will be fine, and pocket healthy income along the way. "Historically, there have been two other instances in history when stocks were as overvalued as they are now relative to bonds. Or, alternatively, bonds were this undervalued relative to stocks," wrote Garner. "Such opportunities have only arisen once every two decades, and they have proven to be significant inflection points in both stocks (the beginning of prolonged underperformance) and bonds (the start of a period of capital gains to enhance interest earned). This metric has been similarly favoring bonds since the initial collapse in 2023, so instant satisfaction shouldn't be expected, but patience will likely pay off."Veteran analyst sends surprising message on stocks, bonds, and gold first appeared on TheStreet on Jun 15, 2025 This story was originally reported by TheStreet on Jun 15, 2025, where it first appeared. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
19 minutes ago
- Yahoo
Duolingo Stock Is Overvalued, According to Wall Street. Time to Sell?
Duolingo stock has surged to levels that do not make sense for some investors. The underlying business is performing extraordinarily well, and management isn't resting on its laurels. 10 stocks we like better than Duolingo › After jumping a hefty 43% in 2024, shares of language-learning app Duolingo (NASDAQ: DUOL) are up another 47% so far in 2025. And according to select Wall Street analysts, the stock has simply climbed too far, too quickly. Stock research platform TipRanks is currently tracking 15 analysts who cover Duolingo stock. Of these analysts, none recommend selling the stock, but their average price target is $476 per share, slightly below where Duolingo is trading as of this writing. In other words, Duolingo stock trades above what these professionals believe it's worth. It's obviously time to sell, right? Well, it's more complicated than that. Most Wall Street price targets only take into account the next 12 to 18 months. But for those who want to consistently do well investing in stocks, a long-term view is beneficial. Investors who hold stocks for five years or more tend to outperform their less patient counterparts. But the buy-and-hold philosophy can't be used indiscriminately. To the contrary, the underlying business still needs to do well during the holding period -- buying and holding businesses with declining fundamentals is still a losing proposition. Therefore, that's the first thing to consider with Duolingo: Is this business poised to do well over the next five years? Duolingo is known for its language-learning courses, and that business is absolutely booming. Nearly 47 million people used the platform every single day during the first quarter of 2025, and 10 million people pay for a subscription that offers extra perks, a whopping 40% increase from the prior-year period. Duolingo's management attributes its success to a variety of factors, but here are two big ones. First, the company does a lot of A/B testing, constantly making changes based on what's working with its users. Second, it also incorporates a lot of game-like elements into the learning process, keeping users motivated and engaged. Now, Duolingo is taking its language expertise and broadening its focus to other verticals, such as math, music, chess, and more. There's no limit to what the company can do when it comes to launching courses and programs, which greatly increase its market opportunity. For what it's worth, companies that can easily expand their market opportunity with related products and services often do well over the long term. Revenue growth is important for creating shareholder value, and it's easier to grow the top line when the opportunity is getting bigger. Since the start of 2022, Duolingo has averaged over 40% quarterly revenue growth, meaning revenue is doubling about every two years. That's extraordinary. Now, generative artificial intelligence (AI) is helping Duolingo develop new products faster than ever. It launched nearly 150 new language courses in Q1 alone. For some investors, this is a good thing -- the company can expand and grow even more quickly. For others, however, this technology presents a risk to Duolingo. Generative AI could also make it easier for other companies to offer competing services. This two-sided risk should be acknowledged, even as Duolingo's business is thriving. I believe it's safe to say that, trading at nearly 30 times its sales, Duolingo stock doesn't look like a bargain at the moment. The chart below shows that a large portion of the stock's gains this year are due to an expanding valuation multiple, which should always give potential new investors pause. The reality is that as Duolingo gets bigger, its growth will likely slow. But even if you assume it sustains a 40% growth rate, the company would generate $4.0 billion in annual revenue by 2029. With a current market capitalization of $21.9 billion, Duolingo still trades at 5.5 times that 2029 sales forecast. That premium leaves investors with the difficult job of weighing a growing business with sound fundamentals and a large market opportunity against a share price that's increasingly hard to justify. None of this is to say existing Duolingo shareholders should be selling out of their positions. Personally, I'm waiting on the sidelines for a price that makes sense to me before buying the stock. Those who decide to buy now are best served by maintaining a long-term perspective. Before you buy stock in Duolingo, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Duolingo wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $653,702!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $870,207!* Now, it's worth noting Stock Advisor's total average return is 988% — a market-crushing outperformance compared to 172% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 9, 2025 Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Duolingo. The Motley Fool has a disclosure policy. Duolingo Stock Is Overvalued, According to Wall Street. Time to Sell? was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
USA Today
20 minutes ago
- USA Today
Trump's 'big beautiful bill' would end EV subsidies: Could this kill Tesla?
Trump's 'big beautiful bill' would end EV subsidies: Could this kill Tesla? Show Caption Hide Caption Trump's 'Big, Beautiful Bill' aims at cutting EV tax credits President Donald Trump's tax bill includes a measure to kill an Obama-era electric vehicle tax credit. Billionaire Elon Musk is fighting to make sure federal tax incentives for electric vehicles (EVs) -- a key subsidy that makes buying EVs more affordable -- remain in place. President Donald Trump's new bill seeks to eliminate these tax incentives, which would otherwise be in place until 2032. Musk's company Tesla (NASDAQ: TSLA) has already seen sales struggle to grow across many key geographies. Deliveries last quarter fell by 32% quarter over quarter, and by 13% year over year. Could the elimination of EV tax credits be a lethal blow to the struggling automaker? You might be surprised by the answer. Is Tesla struggling financially? When it comes to potential regulation "killing" an operating business like Tesla, the first thing investors must consider is the effect on sales growth. Already, demand growth has been stagnating for Tesla. And while the company has teased new potential revenue sources like its robotaxi venture, there aren't many high-visibility milestones ahead that will meaningfully boost revenue over the next year or two. Analysts expect the company to refresh its existing lineup, but details are scarce on releasing any brand new models in 2025 or 2026. Even if a new model is released, it's unlikely that production will scale meaningfully over the next 12 to 24 months. Is Tesla coming out with a new model soon? Where does this leave Tesla over the near term? In the same position it is in today, attempting to stoke demand for an increasingly stale lineup. Making the company's vehicles $4,000 to $7,500 more expensive -- the range of federal incentives that Trump is proposing to eliminate -- could ultimately accelerate sales declines for Tesla. Any potential demand boost from releasing a more affordable Model Y or Model 3, meanwhile, could be completely offset by eliminated tax credits, resulting in minimal net savings for customers. In return, Tesla may need to compress its profit margins in order to keep demand growth on track. Does Tesla have a lot cash on hand? Fortunately, Tesla has the capital to withstand a multiyear stagnation in sales growth. It has $16 billion in cash and equivalents on the books, more than every other competitor. Its profit margins are also positive -- a rarity in the EV world -- meaning it can afford to cut profits a bit without going into the red. It should be mentioned, though, that Tesla has also relied on selling automotive regulator credits -- earned by selling carbon-free vehicles -- to maintain profitability. The company earned $595 million last quarter by selling these credits versus a net income of $409 million. But most of this "free" income from selling credits comes from states like California and New York, as well as incentive programs in the E.U., making them unlikely to be cut should U.S. federal incentives change. Still, Tesla's biggest advantage is its $1 trillion market cap. Tesla could easily double the cash levels on its balance sheet while diluting shareholders by just 1% to 2%. This makes it very unlikely for the company to go under anytime soon. In fact, the elimination of EV tax credits could be a secret win for Tesla. Eliminating EV tax credits could actually help Tesla Many investors might be surprised to learn that ExxonMobil wishes for a carbon tax to be implemented. A carbon tax would make its output more expensive to buyers, potentially limiting demand. But if production costs rise, it's possible that many small competitors can't compete, leaving more of the market for well-capitalized behemoths like Exxon. The same may prove true for Tesla. Most of its EV competition comes from unprofitable companies with minimal room for error like Rivian and Lucid Group. These EV makers are roughly 99% smaller than Tesla, with limited ability to tap the market for more capital at will. The elimination of EV tax credits would hurt them more than Tesla, potentially leaving more long-term market share for Musk and his investors. Of course, the immediate effect will be negative for Tesla and the rest of the industry. But it should be stressed that bills are not laws. The EV tax credit may end up in place until 2032 like previously planned. But the elimination of these subsidies certainly won't "kill" Tesla. In fact, there's an argument that it could be a long-term advantage due to lessened competition. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy. The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY. Don't miss this second chance at a potentially lucrative opportunity Offer from the Motley Fool: Ever feel like you missed the boat in buying the most successful stocks? Then you'll want to hear this. On rare occasions, our expert team of analysts issues a 'Double Down' stock recommendation for companies that they think are about to pop. If you're worried you've already missed your chance to invest, now is the best time to buy before it's too late. 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