While strong cash flow is a key indicator of stability, it doesn’t always translate to superior returns. Some cash-heavy businesses struggle with inefficient spending, slowing demand, or weak competitive positioning.

Luckily for you, we built StockStory to help you separate the good from the bad. That said, here are three cash-producing companies to steer clear of and a few better alternatives.

Teradyne (TER)

Trailing 12-Month Free Cash Flow Margin: 16%

Sporting most major chip manufacturers as its customers, Teradyne (NASDAQ: TER) is a US-based supplier of automated test equipment for semiconductors as well as other technologies and devices.

Why Does TER Worry Us?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.1% annually over the last five years
2. Operating profits fell over the last five years as its sales dropped and it struggled to adjust its fixed costs
3. Sales were less profitable over the last five years as its earnings per share fell by 6.6% annually, worse than its revenue declines

At $198.84 per share, Teradyne trades at 39x forward P/E. Read our free research report to see why you should think twice about including TER in your portfolio.

Designer Brands (DBI)

Trailing 12-Month Free Cash Flow Margin: 3.5%

Founded in 1969 as a shoe importer and distributor, Designer Brands (NYSE: DBI) is an American discount retailer focused on footwear and accessories.

Why Are We Out on DBI?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term

Designer Brands is trading at $7.81 per share, or 25.9x forward P/E. Check out our free in-depth research report to learn more about why DBI doesn’t pass our bar.

Revvity (RVTY)

Trailing 12-Month Free Cash Flow Margin: 17.7%

Formerly known as PerkinElmer until its rebranding in 2023, Revvity (NYSE: RVTY) provides health science technologies and services that support the complete workflow from discovery to development and diagnosis to cure.

Why Do We Pass on RVTY?

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. Overall productivity fell over the last five years as its plummeting sales were accompanied by a decline in its adjusted operating margin
3. Earnings per share have dipped by 3.4% annually over the past five years, which is concerning because stock prices follow EPS over the long term

Revvity’s stock price of $96.84 implies a valuation ratio of 18.4x forward P/E. Dive into our free research report to see why there are better opportunities than RVTY.

Stocks We Like More

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