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 that don’t make the cut and some better opportunities instead.
Central Garden & Pet (CENT)
Trailing 12-Month Free Cash Flow Margin: 9.3%
Enhancing the lives of both pets and homeowners, Central Garden & Pet (NASDAQ: CENT) is a leading producer and distributor of essential products for pet care, lawn and garden maintenance, and pest control.
Why Do We Steer Clear of CENT?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Sales are projected to be flat over the next 12 months and imply weak demand
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its falling returns suggest its earlier profit pools are drying up
At $32.15 per share, Central Garden & Pet trades at 11.5x forward P/E. If you’re considering CENT for your portfolio, see our FREE research report to learn more.
Transcat (TRNS)
Trailing 12-Month Free Cash Flow Margin: 8.3%
Serving the pharmaceutical, industrial manufacturing, energy, and chemical process industries, Transcat (NASDAQ: TRNS) provides measurement instruments and supplies.
Why Are We Cautious About TRNS?
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 2.5 percentage points
- Annual earnings per share growth of 2.7% underperformed its revenue over the last two years, partly because it diluted shareholders
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Transcat’s stock price of $56.73 implies a valuation ratio of 27.5x forward P/E. Dive into our free research report to see why there are better opportunities than TRNS.
L.B. Foster (FSTR)
Trailing 12-Month Free Cash Flow Margin: 5.5%
Founded with a $2,500 loan, L.B. Foster (NASDAQ: FSTR) is a provider of products and services for the transportation and energy infrastructure sectors, including rail products, construction materials, and coating solutions.
Why Are We Wary of FSTR?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Issuance of new shares over the last five years caused its earnings per share to fall by 31.4% annually
- Low returns on capital reflect management’s struggle to allocate funds effectively
L.B. Foster is trading at $26.95 per share, or 8.1x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why FSTR doesn’t pass our bar.
Stocks We Like More
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today.
