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 avoid and some better opportunities instead.

G-III (GIII)

Trailing 12-Month Free Cash Flow Margin: 9.6%

Founded as a small leather goods business, G-III (NASDAQ: GIII) is a fashion and apparel conglomerate with a diverse portfolio of brands.

Why Is GIII Risky?

1. Muted 3.9% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 4.2% annually
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 10.5% for the last two years

G-III is trading at $27.67 per share, or 0.4x forward price-to-sales. Dive into our free research report to see why there are better opportunities than GIII.

Kimball Solutions (KE)

Trailing 12-Month Free Cash Flow Margin: 1.5%

Founded in 1961, Kimball Solutions (NASDAQ: KE) is a global contract manufacturer specializing in electronics and manufacturing solutions for automotive, medical, and industrial markets.

Why Should You Sell KE?

1. Annual sales declines of 8.6% for the past two years show its products and services struggled to connect with the market during this cycle
2. Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
3. Poor free cash flow margin of -0.8% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

At $25.64 per share, Kimball Solutions trades at 15.4x forward P/E. To fully understand why you should be careful with KE, check out our full research report (it’s free).

MSC Industrial (MSM)

Trailing 12-Month Free Cash Flow Margin: 5.6%

Founded in NYC’s Little Italy, MSC Industrial Direct (NYSE: MSM) provides industrial supplies and equipment, offering vast and reliable selection for customers such as contractors

Why Do We Think MSM Will Underperform?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
2. Earnings per share have contracted by 1.4% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
3. Waning returns on capital imply its previous profit engines are losing steam

MSC Industrial’s stock price of $121.57 implies a valuation ratio of 23.1x forward P/E. Dive into our free research report to see why there are better opportunities than MSM.

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