3 Cash-Producing Stocks That Concern Us

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.

Amtech (ASYS)

Trailing 12-Month Free Cash Flow Margin: 7.4%

Focusing on the silicon carbide and power semiconductor sectors, Amtech Systems (NASDAQ:ASYS) produces the machinery and related chemicals needed for manufacturing semiconductors.

Why Is ASYS Risky?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 15.8% annually over the last two years
2. Persistent operating margin losses suggest the business manages its expenses poorly
3. Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 17.8% annually

Amtech’s stock price of $7.85 implies a valuation ratio of 60.4x forward P/E. If you’re considering ASYS for your portfolio, see our FREE research report to learn more.

Herc (HRI)

Trailing 12-Month Free Cash Flow Margin: 5.6%

Formerly a subsidiary of Hertz Corporation and with a logo that still bears some similarities to its former parent, Herc Holdings (NYSE:HRI) provides equipment rental and related services to a wide range of industries.

Why Does HRI Worry Us?

1. Earnings per share fell by 15.2% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
2. Free cash flow margin shrank by 9.4 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens

At $134.27 per share, Herc trades at 17.7x forward P/E. Check out our free in-depth research report to learn more about why HRI doesn’t pass our bar.

ICU Medical (ICUI)

Trailing 12-Month Free Cash Flow Margin: 3.1%

Founded in 1984 and named for its initial focus on intensive care units, ICU Medical (NASDAQ:ICUI) develops and manufactures medical products for infusion therapy, vascular access, and vital care applications used in hospitals and other healthcare settings.

Why Should You Dump ICUI?

1. Sales trends were unexciting over the last two years as its 1.5% annual growth was below the typical healthcare company
2. Projected sales decline of 8.5% for the next 12 months points to a tough demand environment ahead
3. Free cash flow margin dropped by 11.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up

ICU Medical is trading at $148.52 per share, or 20x forward P/E. To fully understand why you should be careful with ICUI, check out our full research report (it’s free for active Edge members).

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