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.

Not all companies are created equal, and StockStory is here to surface the ones with real upside. Keeping that in mind, here are three cash-producing companies to steer clear of and a few better alternatives.

Boston Beer (SAM)

Trailing 12-Month Free Cash Flow Margin: 11%

Known for its flavorful beverages challenging the status quo, Boston Beer (NYSE: SAM) is a pioneer in craft brewing and a symbol of American innovation in the alcoholic beverage industry.

Why Does SAM Worry Us?

1. Products aren't resonating with the market as its revenue declined by 2% annually over the last three years
2. Revenue base of $1.96 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. Estimated sales for the next 12 months are flat and imply a softer demand environment

Boston Beer is trading at $232.20 per share, or 23.8x forward P/E. Dive into our free research report to see why there are better opportunities than SAM.

Allison Transmission (ALSN)

Trailing 12-Month Free Cash Flow Margin: 22%

Helping build race cars at one point, Allison Transmission (NYSE: ALSN) offers transmissions to original equipment manufacturers and fleet operators.

Why Are We Cautious About ALSN?

1. Sales stagnated over the last two years and signal the need for new growth strategies
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term

At $116.80 per share, Allison Transmission trades at 13x forward P/E. Read our free research report to see why you should think twice about including ALSN in your portfolio.

CVS Health (CVS)

Trailing 12-Month Free Cash Flow Margin: 1.9%

With over 9,000 retail pharmacy locations serving as neighborhood health destinations across America, CVS Health (NYSE: CVS) operates retail pharmacies, provides pharmacy benefit management services, and offers health insurance through its Aetna subsidiary.

Why Do We Think Twice About CVS?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 6% over the last two years was below our standards for the healthcare sector
2. Projected sales are flat for the next 12 months, implying demand will slow from its two-year trend
3. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 2.1% annually

CVS Health’s stock price of $77.84 implies a valuation ratio of 11x forward P/E. If you’re considering CVS for your portfolio, see our FREE research report to learn more.

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