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.

Snap (SNAP)

Trailing 12-Month Free Cash Flow Margin: 7%

Founded by Stanford University students Evan Spiegel, Reggie Brown, and Bobby Murphy, and originally called Picaboo, Snapchat (NYSE: SNAP) is an image centric social media network.

Why Is SNAP Not Exciting?

1. Muted 7.5% annual revenue growth over the last three years shows its demand lagged behind its consumer internet peers
2. Focus on expanding its platform has led to weaker growth in its average revenue per user
3. Issuance of new shares over the last three years caused its earnings per share to fall by 2.3% annually while its revenue grew

At $7.94 per share, Snap trades at 21.7x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than SNAP.

National Vision (EYE)

Trailing 12-Month Free Cash Flow Margin: 3%

Operating under multiple brands, National Vision (NYSE: EYE) sells optical products such as eyeglasses and provides optical services such as eye exams.

Why Are We Hesitant About EYE?

1. Store closures are a headwind for growth and suggest it’s rightsizing operations to optimize sales at existing locations
2. Operating margin of 0.6% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam

National Vision’s stock price of $24.92 implies a valuation ratio of 32.3x forward P/E. To fully understand why you should be careful with EYE, check out our full research report (it’s free for active Edge members).

Amneal (AMRX)

Trailing 12-Month Free Cash Flow Margin: 9.9%

Founded in 2002 and growing into one of America's largest generic drug producers, Amneal Pharmaceuticals (NASDAQ: AMRX) develops, manufactures, and distributes generic medicines, specialty branded drugs, biosimilars, and injectable products for the U.S. healthcare market.

Why Are We Cautious About AMRX?

1. ROIC of 3.7% reflects management’s challenges in identifying attractive investment opportunities

Amneal is trading at $10.40 per share, or 14.7x forward P/E. If you’re considering AMRX for your portfolio, see our FREE research report to learn more.

Stocks We Like More

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