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

J. M. Smucker (SJM)

Trailing 12-Month Free Cash Flow Margin: 7.7%

Best known for its fruit jams and spreads, J.M Smucker (NYSE: SJM) is a packaged foods company whose products span from peanut butter and coffee to pet food.

Why Should You Dump SJM?

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. Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 27.1 percentage points
3. ROIC of 2.2% reflects management’s challenges in identifying attractive investment opportunities, and its decreasing returns suggest its historical profit centers are aging

At $105.60 per share, J. M. Smucker trades at 11.1x forward P/E. To fully understand why you should be careful with SJM, check out our full research report (it’s free for active Edge members).

Mohawk Industries (MHK)

Trailing 12-Month Free Cash Flow Margin: 5.5%

Established in 1878, Mohawk Industries (NYSE: MHK) is a leading producer of floor-covering products for both residential and commercial applications.

Why Is MHK Risky?

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. Estimated sales growth of 3% for the next 12 months is soft and implies weaker demand
3. Underwhelming 3.7% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its shrinking returns suggest its past profit sources are losing steam

Mohawk Industries’s stock price of $107.56 implies a valuation ratio of 11x forward P/E. Read our free research report to see why you should think twice about including MHK in your portfolio.

Champion Homes (SKY)

Trailing 12-Month Free Cash Flow Margin: 7.6%

Founded in 1951, Champion Homes (NYSE: SKY) is a manufacturer of modular homes and buildings in North America.

Why Does SKY Worry Us?

1. Estimated sales growth of 2.2% for the next 12 months implies demand will slow from its two-year trend
2. Earnings per share fell by 3.2% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Champion Homes is trading at $79.61 per share, or 20.7x forward P/E. If you’re considering SKY for your portfolio, see our FREE research report to learn more.

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