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.

Luckily for you, we built StockStory to help you separate the good from the bad. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.

Smith & Wesson (SWBI)

Trailing 12-Month Free Cash Flow Margin: 4.6%

With a history dating back to 1852, Smith & Wesson (NASDAQ: SWBI) is a firearms manufacturer known for its handguns and rifles.

Why Should You Sell SWBI?

1. Products and services have few die-hard fans as sales have declined by 10.2% annually over the last five years
2. Poor free cash flow margin of 2.1% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Smith & Wesson’s stock price of $11.58 implies a valuation ratio of 41.5x forward P/E. Read our free research report to see why you should think twice about including SWBI in your portfolio.

Tri Pointe Homes (TPH)

Trailing 12-Month Free Cash Flow Margin: 7.2%

Established in 2009 in California, Tri Pointe Homes (NYSE: TPH) is a United States homebuilder recognized for its innovative and sustainable approach to creating premium, life-enhancing homes.

Why Are We Out on TPH?

1. Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 11.2% declines over the past two years
2. Sales are projected to tank by 17.8% over the next 12 months as its demand continues evaporating
3. Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 7.5% annually, worse than its revenue

Tri Pointe Homes is trading at $35.34 per share, or 16.4x forward P/E. If you’re considering TPH for your portfolio, see our FREE research report to learn more.

Invesco (IVZ)

Trailing 12-Month Free Cash Flow Margin: 40.8%

With roots dating back to 1935 when it pioneered the first mutual fund with an objective of capital growth, Invesco (NYSE: IVZ) is a global asset management firm that offers investment solutions across equities, fixed income, alternatives, and multi-asset strategies.

Why Do We Pass on IVZ?

1. Sales stagnated over the last five years and signal the need for new growth strategies
2. Earnings per share were flat over the last five years and fell short of the peer group average
3. Below-average return on equity indicates management struggled to find compelling investment opportunities

At $25.89 per share, Invesco trades at 10x forward P/E. Check out our free in-depth research report to learn more about why IVZ doesn’t pass our bar.

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