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.

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 to steer clear of and a few better alternatives.

Amtech (ASYS)

Trailing 12-Month Free Cash Flow Margin: 10.9%

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

Why Do We Avoid ASYS?

1. Annual sales declines of 20.4% for the past two years show its products and services struggled to connect with the market during this cycle
2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 6.6% for the last two years
3. Negative returns on capital show management lost money while trying to expand the business, and its falling returns suggest its earlier profit pools are drying up

Amtech is trading at $16.88 per share, or 3.2x trailing 12-month price-to-sales. Dive into our free research report to see why there are better opportunities than ASYS.

Alarm.com (ALRM)

Trailing 12-Month Free Cash Flow Margin: 13.6%

Processing over 325 billion data points annually from more than 150 million connected devices, Alarm.com (NASDAQ: ALRM) provides cloud-based platforms that enable residential and commercial property owners to remotely monitor and control their security, video, energy, and other connected devices.

Why Should You Dump ALRM?

1. Average billings growth of 7.2% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
2. Estimated sales growth of 5% for the next 12 months implies demand will slow from its two-year trend
3. Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient

At $46.24 per share, Alarm.com trades at 2.5x forward price-to-sales. If you’re considering ALRM for your portfolio, see our FREE research report to learn more.

Agilent (A)

Trailing 12-Month Free Cash Flow Margin: 14.1%

Originally spun off from Hewlett-Packard in 1999 as its measurement and analytical division, Agilent Technologies (NYSE: A) provides analytical instruments, software, services, and consumables for laboratory workflows in life sciences, diagnostics, and applied chemical markets.

Why Are We Cautious About A?

1. 2.4% annual revenue growth over the last two years was slower than its healthcare peers
2. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
3. Free cash flow margin shrank by 5.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Agilent’s stock price of $120.65 implies a valuation ratio of 19.9x forward P/E. Read our free research report to see why you should think twice about including A in your portfolio.

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