While strong cash flow is a key indicator of stability, it doesn’t always translate to superior returns. Some cash-heavy businesses struggle with inefficient spending, slowing demand, or weak competitive positioning.

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.

Mattel (MAT)

Trailing 12-Month Free Cash Flow Margin: 10.8%

Known for the creation of iconic toys such as Barbie and Hotwheels, Mattel (NASDAQ: MAT) is a global children's entertainment company specializing in the design and production of consumer products.

Why Are We Cautious About MAT?

1. 1.8% annual revenue growth over the last two years was slower than its consumer discretionary peers
2. Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Mattel’s stock price of $19.74 implies a valuation ratio of 11.8x forward P/E. Check out our free in-depth research report to learn more about why MAT doesn’t pass our bar.

MYR Group (MYRG)

Trailing 12-Month Free Cash Flow Margin: 2.9%

Constructing electrical and phone lines in the American Midwest dating back to the 1890s, MYR Group (NASDAQ: MYRG) is a specialty contractor in the electrical construction industry.

Why Should You Dump MYRG?

1. Flat backlog over the past two years has disappointed and shows fewer customers signed long-term contracts
2. Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 34.5% annually
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

MYR Group is trading at $192.03 per share, or 30.6x forward P/E. Dive into our free research report to see why there are better opportunities than MYRG.

Solventum (SOLV)

Trailing 12-Month Free Cash Flow Margin: 4.6%

Founded in 1985, Solventum (NYSE: SOLV) develops, manufactures, and commercializes a portfolio of healthcare products and services addressing critical customer and therapeutic patient needs.

Why Do We Think Twice About SOLV?

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. Estimated sales growth of 1.3% for the next 12 months is soft and implies weaker demand
3. Incremental sales over the last two years were much less profitable as its earnings per share fell by 21.9% annually while its revenue grew

At $73.86 per share, Solventum trades at 13.1x forward P/E. If you’re considering SOLV for your portfolio, see our FREE research report to learn more.

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