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. That said, here are three cash-producing companies to steer clear of and a few better alternatives.

Columbus McKinnon (CMCO)

Trailing 12-Month Free Cash Flow Margin: 1.9%

With 19 different brands across the globe, Columbus McKinnon (NASDAQ: CMCO) offers material handling equipment for the construction, manufacturing, and transportation industries.

Why Do We Pass on CMCO?

1. Sales were flat over the last two years, indicating it’s failed to expand this cycle
2. Earnings per share fell by 9.3% annually over the last two years while its revenue was flat, showing each sale was less profitable
3. 7.4 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

Columbus McKinnon is trading at $15.15 per share, or 5.9x forward P/E. Check out our free in-depth research report to learn more about why CMCO doesn’t pass our bar.

Hologic (HOLX)

Trailing 12-Month Free Cash Flow Margin: 23.1%

As a pioneer in 3D mammography technology that has revolutionized breast cancer detection, Hologic (NASDAQ: HOLX) develops and manufactures diagnostic products, medical imaging systems, and surgical devices focused primarily on women's health and wellness.

Why Are We Hesitant About HOLX?

1. Constant currency revenue growth has disappointed over the past two years and shows demand was soft
2. Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 23.6 percentage points
3. Waning returns on capital imply its previous profit engines are losing steam

At $72.15 per share, Hologic trades at 16.3x forward P/E. Read our free research report to see why you should think twice about including HOLX in your portfolio.

Allstate (ALL)

Trailing 12-Month Free Cash Flow Margin: 13.1%

Born from a Sears, Roebuck & Co. initiative during the Great Depression with its famous "You're in good hands" slogan, Allstate (NYSE: ALL) is one of America's largest personal property and casualty insurers, offering protection for autos, homes, and personal property.

Why Do We Think Twice About ALL?

1. Estimated sales growth of 3.7% for the next 12 months implies demand will slow from its two-year trend
2. Operational productivity has decreased over the last four years as its combined ratio worsened by 4.8 percentage points
3. Book value per share was flat over the last five years, indicating it’s failed to build equity value this cycle

Allstate’s stock price of $193.98 implies a valuation ratio of 2x forward P/B. To fully understand why you should be careful with ALL, check out our full research report (it’s free for active Edge members).

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