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.

Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here are three cash-producing companies to steer clear of and a few better alternatives.

Applied Materials (AMAT)

Trailing 12-Month Free Cash Flow Margin: 20.4%

Founded in 1967 as the first company to develop tools for other businesses in the semiconductor industry, Applied Materials (NASDAQ: AMAT) is the largest provider of semiconductor wafer fabrication equipment.

Why Do We Think Twice About AMAT?

1. Estimated sales decline of 2.2% for the next 12 months implies a challenging demand environment

Applied Materials is trading at $228.02 per share, or 25.3x forward P/E. To fully understand why you should be careful with AMAT, check out our full research report (it’s free for active Edge members).

OneWater (ONEW)

Trailing 12-Month Free Cash Flow Margin: 5.3%

A public company since early 2020, OneWater Marine (NASDAQ: ONEW) sells boats, yachts, and other marine products.

Why Is ONEW Not Exciting?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Gross margin of 24.2% is below its competitors, leaving less money for marketing and promotions
3. High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $15.94 per share, OneWater trades at 13.9x forward P/E. Check out our free in-depth research report to learn more about why ONEW doesn’t pass our bar.

Pool (POOL)

Trailing 12-Month Free Cash Flow Margin: 7.5%

Founded in 1993 and headquartered in Louisiana, Pool (NASDAQ: POOL) is one of the largest wholesale distributors of swimming pool supplies, equipment, and related leisure products.

Why Is POOL Risky?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Projected sales growth of 3.1% for the next 12 months suggests sluggish demand
3. Eroding returns on capital suggest its historical profit centers are aging

Pool’s stock price of $288 implies a valuation ratio of 25x forward P/E. Read our free research report to see why you should think twice about including POOL in your portfolio.

Stocks We Like More

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