3 Cash-Producing Stocks We're Skeptical Of

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 to steer clear of and a few better alternatives.

Simply Good Foods (SMPL)

Trailing 12-Month Free Cash Flow Margin: 12%

Best known for its Atkins brand that was inspired by the popular diet of the same name, Simply Good Foods (NASDAQ:SMPL) is a packaged food company whose offerings help customers achieve their healthy eating or weight loss goals.

Why Do We Think Twice About SMPL?

1. 6.9% annual revenue growth over the last three years was slower than its consumer staples peers
2. Projected sales are flat for the next 12 months, implying demand will slow from its three-year trend
3. Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 5.7 percentage points

Simply Good Foods’s stock price of $15.55 implies a valuation ratio of 7.8x forward P/E. Read our free research report to see why you should think twice about including SMPL in your portfolio.

Oshkosh (OSK)

Trailing 12-Month Free Cash Flow Margin: 5.9%

Oshkosh (NYSE:OSK) manufactures specialty vehicles for the defense, fire, emergency, and commercial industry, operating various brand subsidiaries within each industry.

Why Are We Hesitant About OSK?

1. Demand cratered as it couldn’t win new orders over the past two years, leading to an average 5.7% decline in its backlog
2. High input costs result in an inferior gross margin of 16.5% that must be offset through higher volumes
3. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 4.5% annually

At $154.37 per share, Oshkosh trades at 13.7x forward P/E. Check out our free in-depth research report to learn more about why OSK doesn’t pass our bar.

Henry Schein (HSIC)

Trailing 12-Month Free Cash Flow Margin: 4.3%

With a vast inventory of over 300,000 products stocked in distribution centers spanning more than 5.3 million square feet worldwide, Henry Schein (NASDAQ:HSIC) is a global distributor of healthcare products and services primarily to dental practices, medical offices, and other healthcare facilities.

Why Does HSIC Give Us Pause?

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. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 4.1%
3. Diminishing returns on capital suggest its earlier profit pools are drying up

Henry Schein is trading at $78.08 per share, or 14.6x forward P/E. Dive into our free research report to see why there are better opportunities than HSIC.

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