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 steer clear of and a few better alternatives.

WESCO (WCC)

Trailing 12-Month Free Cash Flow Margin: 1.5%

Based in Pittsburgh, WESCO (NYSE: WCC) provides electrical, industrial, and communications products and augments them with services such as supply chain management.

Why Are We Wary of WCC?

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 per share have dipped by 14.3% annually over the past two years, which is concerning because stock prices follow EPS over the long term
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

WESCO is trading at $194.29 per share, or 13.7x forward P/E. Read our free research report to see why you should think twice about including WCC in your portfolio.

Gibraltar (ROCK)

Trailing 12-Month Free Cash Flow Margin: 8.3%

Gibraltar (NASDAQ: ROCK) makes renewable energy, agriculture technology and infrastructure products. Its mission statement is to make everyday living more sustainable.

Why Are We Hesitant About ROCK?

1. Annual sales declines of 2.2% for the past two years show its products and services struggled to connect with the market during this cycle
2. Gross margin of 25.2% is below its competitors, leaving less money to invest in areas like marketing and R&D
3. 2 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 $62.31 per share, Gibraltar trades at 12.9x forward P/E. To fully understand why you should be careful with ROCK, check out our full research report (it’s free).

Crane (CR)

Trailing 12-Month Free Cash Flow Margin: 11.7%

Based in Connecticut, Crane (NYSE: CR) is a diversified manufacturer of engineered industrial products, including fluid handling, and aerospace technologies.

Why Is CR Risky?

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. Anticipated sales growth of 6.3% for the next year implies demand will be shaky
3. Earnings per share were flat over the last five years and fell short of the peer group average

Crane’s stock price of $193.16 implies a valuation ratio of 34.1x forward P/E. Check out our free in-depth research report to learn more about why CR doesn’t pass our bar.

High-Quality Stocks for All Market Conditions

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