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 steer clear of and a few better alternatives.

Asure Software (ASUR)

Trailing 12-Month Free Cash Flow Margin: 5.5%

Operating in the often-overlooked smaller metropolitan markets where HR expertise can be scarce, Asure Software (NASDAQ: ASUR) provides cloud-based human capital management software and services that help small and medium-sized businesses manage payroll, taxes, time tracking, and HR compliance.

Why Are We Hesitant About ASUR?

1. Offerings struggled to generate meaningful interest as its average billings growth of 14.2% over the last year did not impress
2. Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

Asure Software’s stock price of $8.85 implies a valuation ratio of 1.5x forward price-to-sales. Read our free research report to see why you should think twice about including ASUR in your portfolio.

Atkore (ATKR)

Trailing 12-Month Free Cash Flow Margin: 6.9%

Protecting the things that power our world, Atkore (NYSE: ATKR) designs and manufactures electrical safety products.

Why Do We Avoid ATKR?

1. Sales tumbled by 9.6% annually over the last two years, showing market trends are working against its favor during this cycle
2. 9 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $68.70 per share, Atkore trades at 12.6x forward P/E. Dive into our free research report to see why there are better opportunities than ATKR.

Worthington (WOR)

Trailing 12-Month Free Cash Flow Margin: 12.4%

Founded by a steel salesman, Worthington (NYSE: WOR) specializes in steel processing, pressure cylinders, and engineered cabs for commercial markets.

Why Are We Out on WOR?

1. Sales tumbled by 13.9% annually over the last five years, showing market trends are working against its favor during this cycle
2. Earnings per share have contracted by 26.7% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Worthington is trading at $55.04 per share, or 14.3x forward P/E. If you’re considering WOR for your portfolio, see our FREE research report to learn more.

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