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.

Revolve (RVLV)

Trailing 12-Month Free Cash Flow Margin: 3.9%

Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve (NYSE: RVLV) is a fashion retailer leveraging social media and a community of fashion influencers to drive its merchandising strategy.

Why Should You Dump RVLV?

1. Modest 5.8% annual growth in active customers over the last two years indicates potential challenges in customer acquisition and retention
2. High marketing expenses suggest it needs to spend heavily on new customer acquisition to sustain momentum
3. Earnings per share lagged its peers over the last three years as they only grew by 7.5% annually

Revolve is trading at $18.62 per share, or 10.3x forward EV/EBITDA. Check out our free in-depth research report to learn more about why RVLV doesn’t pass our bar.

Movado (MOV)

Trailing 12-Month Free Cash Flow Margin: 8%

With its watches displayed in 20 museums around the world, Movado (NYSE: MOV) is a watchmaking company with a portfolio of watch brands and accessories.

Why Should You Sell MOV?

1. Annual revenue growth of 5.8% over the last five years was below our standards for the consumer discretionary sector
2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 3.3% for the last two years
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

At $26.98 per share, Movado trades at 18x forward P/E. To fully understand why you should be careful with MOV, check out our full research report (it’s free).

Pool (POOL)

Trailing 12-Month Free Cash Flow Margin: 5.8%

Founded in 1993 and headquartered in Louisiana, Pool (NASDAQ: POOL) is one of the largest wholesale distributors of swimming pool supplies, equipment, and related leisure products.

Why Do We Think POOL Will Underperform?

1. Lackluster 4.4% annual revenue growth over the last five years indicates the company is losing ground to competitors
2. Low free cash flow margin of 7.5% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Pool’s stock price of $175.69 implies a valuation ratio of 15.6x forward P/E. Read our free research report to see why you should think twice about including POOL in your portfolio.

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