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.

FOX (FOXA)

Trailing 12-Month Free Cash Flow Margin: 18.4%

Founded in 1915, Fox (NASDAQ: FOXA) is a diversified media company, operating prominent cable news, television broadcasting, and digital media platforms.

Why Are We Out on FOXA?

1. Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 4.5% for the last two years
2. Sales are projected to tank by 2.6% over the next 12 months as demand evaporates
3. Projected 4.5 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position

FOX is trading at $59.80 per share, or 13.9x forward P/E. If you’re considering FOXA for your portfolio, see our FREE research report to learn more.

Northrop Grumman (NOC)

Trailing 12-Month Free Cash Flow Margin: 3.2%

Responsible for the development of the first stealth bomber, Northrop Grumman (NYSE: NOC) specializes in providing aerospace, defense, and security solutions for various industry applications.

Why Should You Sell NOC?

1. 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
2. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 5.6 percentage points
3. Waning returns on capital imply its previous profit engines are losing steam

Northrop Grumman’s stock price of $587.89 implies a valuation ratio of 20.7x forward P/E. Read our free research report to see why you should think twice about including NOC in your portfolio.

Mettler-Toledo (MTD)

Trailing 12-Month Free Cash Flow Margin: 21.9%

With roots dating back to the precision balance innovations of Swiss engineer Erhard Mettler, Mettler-Toledo (NYSE: MTD) manufactures precision weighing instruments, analytical equipment, and product inspection systems used in laboratories, industrial settings, and food retail.

Why Do We Think Twice About MTD?

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. Estimated sales growth of 4.5% for the next 12 months is soft and implies weaker demand
3. Inability to adjust its cost structure while its revenue declined over the last two years led to a 1.1 percentage point drop in the company’s adjusted operating margin

At $1,283 per share, Mettler-Toledo trades at 29.2x forward P/E. Dive into our free research report to see why there are better opportunities than MTD.

High-Quality Stocks for All Market Conditions

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