3 Cash-Producing Stocks We Find Risky

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

Not all companies are created equal, and StockStory is here to surface the ones with real upside. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.

IDEX (IEX)

Trailing 12-Month Free Cash Flow Margin: 17.8%

Founded in 1988, IDEX (NYSE:IEX) is a global manufacturer specializing in highly engineered products such as pumps, flow meters, and fluidics systems for various industries.

Why Is IEX 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. Incremental sales over the last two years were much less profitable as its earnings per share fell by 1.7% annually while its revenue grew
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

IDEX’s stock price of $190.82 implies a valuation ratio of 24.6x forward P/E. To fully understand why you should be careful with IEX, check out our full research report (it’s free).

Albany (AIN)

Trailing 12-Month Free Cash Flow Margin: 7%

Founded in 1895, Albany (NYSE:AIN) is a global textiles and materials processing company, specializing in machine clothing for paper mills and engineered composite structures for aerospace and other industries.

Why Do We Think AIN Will Underperform?

1. 1.5% annual revenue growth over the last two years was slower than its industrials peers
2. Free cash flow margin shrank by 10.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

At $58.37 per share, Albany trades at 24.6x forward P/E. Read our free research report to see why you should think twice about including AIN in your portfolio.

Mercury Systems (MRCY)

Trailing 12-Month Free Cash Flow Margin: 10.5%

Founded in 1981, Mercury Systems (NASDAQ:MRCY) specializes in providing processing subsystems and components for primarily defense applications.

Why Do We Pass on MRCY?

1. New orders were hard to come by as its average backlog growth of 5.6% over the past two years underwhelmed
2. Efficiency has decreased over the last five years as its operating margin fell by 5.4 percentage points
3. Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 16.7% annually

Mercury Systems is trading at $88.68 per share, or 76.7x forward P/E. Check out our free in-depth research report to learn more about why MRCY doesn’t pass our bar.

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