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. That said, here are three cash-producing companies to steer clear of and a few better alternatives.

PACCAR (PCAR)

Trailing 12-Month Free Cash Flow Margin: 12.8%

Founded more than a century ago, PACCAR (NASDAQ: PCAR) designs and manufactures commercial trucks of various weights and sizes for the commercial trucking industry.

Why Does PCAR Worry Us?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Sales are projected to tank by 6% over the next 12 months as its demand continues evaporating
3. Earnings per share have contracted by 19.6% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance

PACCAR’s stock price of $112.80 implies a valuation ratio of 22.2x forward P/E. To fully understand why you should be careful with PCAR, check out our full research report (it’s free for active Edge members).

Interface (TILE)

Trailing 12-Month Free Cash Flow Margin: 8.6%

Pioneering carbon-neutral flooring since its founding in 1973, Interface (NASDAQ: TILE) is a global manufacturer of modular carpet tiles, luxury vinyl tile (LVT), and rubber flooring that specializes in carbon-neutral and sustainable flooring solutions.

Why Are We Wary of TILE?

1. 3.3% annual revenue growth over the last five years was slower than its business services peers
2. Estimated sales growth of 4.4% for the next 12 months is soft and implies weaker demand
3. Earnings per share lagged its peers over the last five years as they only grew by 6.2% annually

Interface is trading at $27.97 per share, or 14.1x forward P/E. If you’re considering TILE for your portfolio, see our FREE research report to learn more.

Sherwin-Williams (SHW)

Trailing 12-Month Free Cash Flow Margin: 7.1%

Widely known for its success in the paint industry, Sherwin-Williams (NYSE: SHW) is a manufacturer of paints, coatings, and related products.

Why Does SHW Fall Short?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.2% annually
3. 2.9 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

At $323.83 per share, Sherwin-Williams trades at 26.3x forward P/E. Check out our free in-depth research report to learn more about why SHW doesn’t pass our bar.

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