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 avoid and some better opportunities instead.

Sally Beauty (SBH)

Trailing 12-Month Free Cash Flow Margin: 4%

Catering to both everyday consumers as well as salon professionals, Sally Beauty (NYSE: SBH) is a retailer that sells salon-quality beauty products such as makeup and haircare products.

Why Do We Pass on SBH?

1. Store closures and disappointing same-store sales suggest demand is sluggish and it’s rightsizing its operations
2. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
3. Revenue base of $3.70 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale

At $10.28 per share, Sally Beauty trades at 5.3x forward P/E. If you’re considering SBH for your portfolio, see our FREE research report to learn more.

Otis (OTIS)

Trailing 12-Month Free Cash Flow Margin: 10.3%

Credited with inventing the first hydraulic passenger elevator, Otis Worldwide (NYSE: OTIS) is an elevator and escalator manufacturing, installation and service company.

Why Is OTIS Not Exciting?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Projected sales growth of 4% for the next 12 months suggests sluggish demand
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 2.8 percentage points

Otis is trading at $99.51 per share, or 23.8x forward P/E. Dive into our free research report to see why there are better opportunities than OTIS.

Ball (BALL)

Trailing 12-Month Free Cash Flow Margin: 2.4%

Started with a $200 loan in 1880, Ball (NYSE: BLL) manufactures aluminum packaging for beverages, personal care, and household products as well as aerospace systems and other technologies.

Why Are We Out on BALL?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Low free cash flow margin of -0.6% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Ball’s stock price of $58.73 implies a valuation ratio of 16.2x forward P/E. To fully understand why you should be careful with BALL, check out our full research report (it’s free).

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