A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.

Luckily for you, we built StockStory to help you separate the good from the bad. That said, here are three cash-producing companies to steer clear of and a few better alternatives.

Boston Beer (SAM)

Trailing 12-Month Free Cash Flow Margin: 10.8%

Known for its flavorful beverages challenging the status quo, Boston Beer (NYSE: SAM) is a pioneer in craft brewing and a symbol of American innovation in the alcoholic beverage industry.

Why Does SAM Worry Us?

1. Lackluster 1.6% annual revenue growth over the last three years indicates the company is losing ground to competitors
2. Smaller revenue base of $2.05 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
3. Estimated sales decline of 4.2% for the next 12 months implies a challenging demand environment

Boston Beer is trading at $225.41 per share, or 23.7x forward P/E. Dive into our free research report to see why there are better opportunities than SAM.

Omnicell (OMCL)

Trailing 12-Month Free Cash Flow Margin: 9.3%

Driven by the vision of an "Autonomous Pharmacy" with zero medication errors, Omnicell (NASDAQ: OMCL) provides medication management automation and adherence tools that help healthcare systems and pharmacies reduce errors and improve efficiency.

Why Do We Think OMCL Will Underperform?

1. Sales tumbled by 3.5% annually over the last two years, showing market trends are working against its favor during this cycle
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 6.1% annually while its revenue grew
3. Free cash flow margin dropped by 13.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up

Omnicell’s stock price of $31.44 implies a valuation ratio of 21.6x forward P/E. Check out our free in-depth research report to learn more about why OMCL doesn’t pass our bar.

Grid Dynamics (GDYN)

Trailing 12-Month Free Cash Flow Margin: 7.7%

With engineering centers across the Americas, Europe, and India serving Fortune 1000 companies, Grid Dynamics (NASDAQ: GDYN) provides technology consulting, engineering, and analytics services to help large enterprises modernize their technology systems and business processes.

Why Are We Wary of GDYN?

1. Subscale operations are evident in its revenue base of $389.2 million, meaning it has fewer distribution channels than its larger rivals
2. Incremental sales over the last two years were much less profitable as its earnings per share fell by 3.3% annually while its revenue grew
3. Negative returns on capital show management lost money while trying to expand the business

At $7.74 per share, Grid Dynamics trades at 16.9x forward P/E. Dive into our free research report to see why there are better opportunities than GDYN.

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