A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Mayville Engineering (MEC)
Trailing 12-Month Free Cash Flow Margin: 13.1%
Originally founded solely on tool and die manufacturing, Mayville Engineering Company (NYSE: MEC) specializes in metal fabrication, tube bending, and welding to be used in various industries.
Why Are We Cautious About MEC?
- Sales tumbled by 2% annually over the last two years, showing market trends are working against its favor during this cycle
- Gross margin of 12.8% reflects its high production costs
- Earnings per share have contracted by 43.3% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
At $14.94 per share, Mayville Engineering trades at 15.7x forward P/E. Read our free research report to see why you should think twice about including MEC in your portfolio.
Dover (DOV)
Trailing 12-Month Free Cash Flow Margin: 12.3%
A company that manufactured critical equipment for the United States military during World War II, Dover (NYSE: DOV) manufactures engineered components and specialized equipment for numerous industries.
Why Do We Steer Clear of DOV?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Earnings per share lagged its peers over the last two years as they only grew by 3.2% annually
- Diminishing returns on capital suggest its earlier profit pools are drying up
Dover’s stock price of $182.83 implies a valuation ratio of 18.7x forward P/E. Check out our free in-depth research report to learn more about why DOV doesn’t pass our bar.
SS&C (SSNC)
Trailing 12-Month Free Cash Flow Margin: 19.7%
Founded in 1986 as a bridge between technology and financial services, SS&C Technologies (NASDAQ: SSNC) provides software and software-enabled services that help financial firms and healthcare organizations automate complex business processes.
Why Is SSNC Not Exciting?
- Earnings growth underperformed the sector average over the last five years as its EPS grew by just 7.1% annually
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 2.5 percentage points
- ROIC of 6.4% reflects management’s challenges in identifying attractive investment opportunities
SS&C is trading at $87.99 per share, or 14.2x forward P/E. Dive into our free research report to see why there are better opportunities than SSNC.
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