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.

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 steer clear of and a few better alternatives.

Hillman (HLMN)

Trailing 12-Month Free Cash Flow Margin: 2.7%

Established when Max Hillman purchased a franchise operation, Hillman (NASDAQ: HLMN) designs, manufactures, and sells industrial equipment and systems for various sectors.

Why Are We Hesitant About HLMN?

1. 1.9% annual revenue growth over the last two years was slower than its industrials peers
2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 2.5% for the last five years
3. Underwhelming 2.4% return on capital reflects management’s difficulties in finding profitable growth opportunities

At $9.20 per share, Hillman trades at 15.3x forward P/E. If you’re considering HLMN for your portfolio, see our FREE research report to learn more.

Regeneron (REGN)

Trailing 12-Month Free Cash Flow Margin: 29.6%

Founded by scientists who wanted to build a company where science could thrive, Regeneron Pharmaceuticals (NASDAQ: REGN) develops and commercializes medicines for serious diseases, with key products treating eye conditions, allergic diseases, cancer, and other disorders.

Why Does REGN Give Us Pause?

1. Sizable revenue base leads to growth challenges as its 4.3% annual revenue increases over the last two years fell short of other healthcare companies
2. Efficiency has decreased over the last five years as its adjusted operating margin fell by 23.8 percentage points
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Regeneron’s stock price of $723.19 implies a valuation ratio of 16.6x forward P/E. Read our free research report to see why you should think twice about including REGN in your portfolio.

Organon (OGN)

Trailing 12-Month Free Cash Flow Margin: 12.3%

Spun off from Merck in 2021 to create a company dedicated to addressing unmet needs in women's health, Organon (NYSE: OGN) is a global healthcare company focused on improving women's health through prescription therapies, medical devices, biosimilars, and established medicines.

Why Are We Wary of OGN?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.7% annually over the last five years
2. Sales were less profitable over the last five years as its earnings per share fell by 17.6% annually, worse than its revenue declines
3. Free cash flow margin dropped by 24.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up

Organon is trading at $7.32 per share, or 2x forward P/E. Check out our free in-depth research report to learn more about why OGN doesn’t pass our bar.

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