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

Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here are three cash-producing companies to steer clear of and a few better alternatives.

onsemi (ON)

Trailing 12-Month Free Cash Flow Margin: 20.8%

Spun out of Motorola in 1999 and built through a series of acquisitions, onsemi (NASDAQ: ON) is a global provider of analog chips specializing in autos, industrial applications, and power management in cloud data centers.

Why Do We Think Twice About ON?

1. Sales tumbled by 10.6% annually over the last two years, showing market trends are working against its favor during this cycle
2. Forecasted revenue decline of 9.7% for the upcoming 12 months implies demand will fall even further
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

onsemi’s stock price of $59 implies a valuation ratio of 21.4x forward P/E. To fully understand why you should be careful with ON, check out our full research report (it’s free).

Amtech (ASYS)

Trailing 12-Month Free Cash Flow Margin: 5%

Focusing on the silicon carbide and power semiconductor sectors, Amtech Systems (NASDAQ: ASYS) produces the machinery and related chemicals needed for manufacturing semiconductors.

Why Should You Dump ASYS?

1. Annual sales declines of 7.9% for the past two years show its products and services struggled to connect with the market during this cycle
2. Suboptimal cost structure is highlighted by its history of operating margin losses
3. Push for growth has led to negative returns on capital, signaling value destruction, and its falling returns suggest its earlier profit pools are drying up

Amtech is trading at $4.70 per share, or 17.9x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including ASYS in your portfolio.

JLL (JLL)

Trailing 12-Month Free Cash Flow Margin: 2.1%

Founded in 1999 through the merger of Jones Lang Wootton and LaSalle Partners, JLL (NYSE: JLL) is a company specializing in real estate advisory and investment management services.

Why Are We Out on JLL?

1. Annual sales growth of 5.7% over the last five years lagged behind its consumer discretionary peers as its large revenue base made it difficult to generate incremental demand
2. Low free cash flow margin of 2.1% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Underwhelming 7.6% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging

At $262.66 per share, JLL trades at 15.8x forward P/E. If you’re considering JLL for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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