A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.

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

Chewy (CHWY)

Trailing 12-Month Free Cash Flow Margin: 3.9%

Founded by Ryan Cohen, who later became known for his involvement in GameStop, Chewy (NYSE: CHWY) is an online retailer specializing in pet food, supplies, and healthcare services.

Why Is CHWY Not Exciting?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 8.5% over the last three years was below our standards for the consumer internet sector
2. Estimated sales growth of 6.1% for the next 12 months implies demand will slow from its three-year trend
3. Gross margin of 29.4% is below its competitors, leaving less money to invest in areas like marketing and R&D

Chewy’s stock price of $32.45 implies a valuation ratio of 16.2x forward EV/EBITDA. To fully understand why you should be careful with CHWY, check out our full research report (it’s free for active Edge members).

Pilgrim's Pride (PPC)

Trailing 12-Month Free Cash Flow Margin: 4.5%

Offering everything from pre-marinated to frozen chicken, Pilgrim’s Pride (NASDAQ: PPC) produces, processes, and distributes chicken products to retailers and food service customers.

Why Do We Pass on PPC?

1. Sizable revenue base leads to growth challenges as its 1.8% annual revenue increases over the last three years fell short of other consumer staples companies
2. Demand will likely fall over the next 12 months as Wall Street expects flat revenue
3. Easily substituted products (and therefore stiff competition) result in an inferior gross margin of 12.5% that must be offset through higher volumes

At $39.45 per share, Pilgrim's Pride trades at 9.4x forward P/E. Dive into our free research report to see why there are better opportunities than PPC.

Regal Rexnord (RRX)

Trailing 12-Month Free Cash Flow Margin: 9.7%

Headquartered in Milwaukee, Regal Rexnord (NYSE: RRX) provides power transmission and industrial automation products.

Why Are We Wary of RRX?

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. Flat earnings per share over the last two years underperformed the sector average
3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its decreasing returns suggest its historical profit centers are aging

Regal Rexnord is trading at $139.96 per share, or 13.3x forward P/E. If you’re considering RRX for your portfolio, see our FREE research report to learn more.

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