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. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.

Constellation Brands (STZ)

Trailing 12-Month Free Cash Flow Margin: 20.5%

With a presence in more than 100 countries, Constellation Brands (NYSE: STZ) is a globally renowned producer and marketer of beer, wine, and spirits.

Why Do We Think Twice About STZ?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Estimated sales decline of 6.8% for the next 12 months implies a challenging demand environment
3. Efficiency has decreased over the last year as its operating margin fell by 31.8 percentage points

Constellation Brands is trading at $173.04 per share, or 13.4x forward P/E. Check out our free in-depth research report to learn more about why STZ doesn’t pass our bar.

Sanmina (SANM)

Trailing 12-Month Free Cash Flow Margin: 4.6%

Founded in 1980, Sanmina (NASDAQ: SANM) is an electronics manufacturing services company offering end-to-end solutions for various industries.

Why Do We Steer Clear of SANM?

1. Sales tumbled by 6% annually over the last two years, showing market trends are working against its favor during this cycle
2. Gross margin of 8.2% is below its competitors, leaving less money to invest in areas like marketing and R&D
3. Earnings per share have contracted by 3.8% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance

Sanmina’s stock price of $94 implies a valuation ratio of 14.3x forward P/E. To fully understand why you should be careful with SANM, check out our full research report (it’s free).

CoStar (CSGP)

Trailing 12-Month Free Cash Flow Margin: 2%

With a research department that makes over 10,000 property updates daily to its 35-year-old database, CoStar Group (NASDAQ: CSGP) provides comprehensive real estate data, analytics, and online marketplaces for commercial and residential properties in the U.S. and U.K.

Why Does CSGP Give Us Pause?

1. Earnings per share fell by 3.7% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
2. Free cash flow margin shrank by 13.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

At $93.30 per share, CoStar trades at 87x forward P/E. If you’re considering CSGP for your portfolio, see our FREE research report to learn more.

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