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.

Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here are three cash-producing companies to steer clear of and a few better alternatives.

Snap-on (SNA)

Trailing 12-Month Free Cash Flow Margin: 18.9%

Founded in 1920, Snap-on (NYSE: SNA) is a global provider of tools, equipment, and diagnostics for various industries such as vehicle repair, aerospace, and the military.

Why Does SNA Give Us Pause?

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. Flat earnings per share over the last two years lagged its peers
3. Eroding returns on capital suggest its historical profit centers are aging

Snap-on’s stock price of $366.70 implies a valuation ratio of 18.7x forward P/E. If you’re considering SNA for your portfolio, see our FREE research report to learn more.

Vishay Precision (VPG)

Trailing 12-Month Free Cash Flow Margin: 3.2%

Emerging from Vishay Intertechnology in 2010, Vishay Precision (NYSE: VPG) operates as a global provider of precision measurement and sensing technologies.

Why Do We Think VPG Will Underperform?

1. Annual sales declines of 9% for the past two years show its products and services struggled to connect with the market during this cycle
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 15.3% annually while its revenue grew
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Vishay Precision is trading at $50.69 per share, or 46.9x forward P/E. Read our free research report to see why you should think twice about including VPG in your portfolio.

West Pharmaceutical Services (WST)

Trailing 12-Month Free Cash Flow Margin: 12.6%

Founded in 1923 and serving as a critical link in the pharmaceutical supply chain, West Pharmaceutical Services (NYSE: WST) manufactures specialized packaging, containment systems, and delivery devices for injectable drugs and healthcare products.

Why Are We Wary of WST?

1. Annual revenue growth of 1.5% over the last two years was below our standards for the healthcare sector
2. Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 5.5 percentage points
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $232.65 per share, West Pharmaceutical Services trades at 31.6x forward P/E. Dive into our free research report to see why there are better opportunities than WST.

Stocks We Like More

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