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

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.

Upland Software (UPLD)

Trailing 12-Month Free Cash Flow Margin: 11.3%

Operating under the mantra "land and expand," Upland Software (NASDAQ: UPLD) provides cloud-based applications that help organizations manage projects, workflows, and digital transformation across various business functions.

Why Are We Out on UPLD?

1. Customers had second thoughts about committing to its platform over the last year as its billings averaged 19.9% declines
2. Forecasted revenue decline of 7.7% for the upcoming 12 months implies demand will fall even further
3. Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low

Upland Software’s stock price of $0.64 implies a valuation ratio of 0.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than UPLD.

Old Dominion Freight Line (ODFL)

Trailing 12-Month Free Cash Flow Margin: 18.3%

With its name deriving from the Commonwealth of Virginia’s nickname, Old Dominion (NASDAQ: ODFL) delivers less-than-truckload (LTL) and full-container load freight.

Why Does ODFL Fall Short?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.2% annually over the last two years
2. Earnings per share have contracted by 7.2% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Waning returns on capital imply its previous profit engines are losing steam

Old Dominion Freight Line is trading at $208.39 per share, or 40.9x forward P/E. Read our free research report to see why you should think twice about including ODFL in your portfolio.

Collegium Pharmaceutical (COLL)

Trailing 12-Month Free Cash Flow Margin: 42%

Pioneering abuse-deterrent technology in a field plagued by addiction concerns, Collegium Pharmaceutical (NASDAQ: COLL) develops and markets specialty medications for treating moderate to severe pain, including abuse-deterrent opioid formulations.

Why Are We Wary of COLL?

1. Smaller revenue base of $780.6 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
2. Costs have risen faster than its revenue over the last two years, causing its adjusted operating margin to decline by 4.8 percentage points
3. Eroding returns on capital suggest its historical profit centers are aging

At $35.19 per share, Collegium Pharmaceutical trades at 4.6x forward P/E. Check out our free in-depth research report to learn more about why COLL doesn’t pass our bar.

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