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. Keeping that in mind, here are three cash-producing companies to avoid and some better opportunities instead.

Benchmark (BHE)

Trailing 12-Month Free Cash Flow Margin: 3.1%

Operating as a critical behind-the-scenes partner for complex technology products since 1979, Benchmark Electronics (NYSE: BHE) provides advanced manufacturing, engineering, and technology solutions for original equipment manufacturers across aerospace, medical, industrial, and technology sectors.

Why Are We Hesitant About BHE?

1. Sales tumbled by 6.3% annually over the last two years, showing market trends are working against its favor during this cycle
2. Poor free cash flow margin of 0.8% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. ROIC of 7.3% reflects management’s challenges in identifying attractive investment opportunities

Benchmark’s stock price of $40.55 implies a valuation ratio of 16.5x forward P/E. To fully understand why you should be careful with BHE, check out our full research report (it’s free).

AMN Healthcare Services (AMN)

Trailing 12-Month Free Cash Flow Margin: 9.2%

With a network of thousands of healthcare professionals ranging from nurses to physicians to executives, AMN Healthcare (NYSE: AMN) provides healthcare workforce solutions including temporary staffing, permanent placement, and technology platforms for hospitals and healthcare facilities across the United States.

Why Is AMN Risky?

1. Declining travelers on assignment over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 8.4% annually
3. Diminishing returns on capital suggest its earlier profit pools are drying up

AMN Healthcare Services is trading at $20.90 per share, or 20x forward P/E. If you’re considering AMN for your portfolio, see our FREE research report to learn more.

Ziff Davis (ZD)

Trailing 12-Month Free Cash Flow Margin: 16.1%

Originally a pioneering technology publisher founded in 1927 that became famous for PC Magazine, Ziff Davis (NASDAQ: ZD) operates a portfolio of digital media brands and subscription services across technology, shopping, gaming, healthcare, and cybersecurity markets.

Why Do We Avoid ZD?

1. Flat sales over the last five years suggest it must find different ways to grow during this cycle
2. Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 1.7% annually
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 15.2 percentage points

At $37.60 per share, Ziff Davis trades at 5.5x forward P/E. Dive into our free research report to see why there are better opportunities than ZD.

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