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. That said, here are three cash-producing companies to avoid and some better opportunities instead.

Qorvo (QRVO)

Trailing 12-Month Free Cash Flow Margin: 16.1%

Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.

Why Do We Pass on QRVO?

1. 2.3% annual revenue growth over the last five years was slower than its semiconductor peers
2. Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 22.3 percentage points
3. 11.7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

Qorvo is trading at $82 per share, or 14.1x forward P/E. Check out our free in-depth research report to learn more about why QRVO doesn’t pass our bar.

PlayStudios (MYPS)

Trailing 12-Month Free Cash Flow Margin: 15.1%

Founded by a team of former gaming industry executives, PlayStudios (NASDAQ: MYPS) offers free-to-play digital casino games.

Why Does MYPS Give Us Pause?

1. Products and services have few die-hard fans as sales have declined by 4.4% annually over the last two years
2. Suboptimal cost structure is highlighted by its history of operating margin losses
3. Negative returns on capital show management lost money while trying to expand the business

PlayStudios’s stock price of $1.16 implies a valuation ratio of 2.9x forward EV-to-EBITDA. If you’re considering MYPS for your portfolio, see our FREE research report to learn more.

TaskUs (TASK)

Trailing 12-Month Free Cash Flow Margin: 10%

Starting as a virtual assistant service in 2008 before evolving into a global digital services provider, TaskUs (NASDAQ: TASK) provides outsourced digital services including customer experience management, content moderation, and AI data services to innovative technology companies.

Why Are We Wary of TASK?

1. 1.8% annual revenue growth over the last two years was slower than its business services peers
2. Earnings per share have contracted by 4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. ROIC of 5.4% reflects management’s challenges in identifying attractive investment opportunities

At $17.08 per share, TaskUs trades at 12.3x forward P/E. Dive into our free research report to see why there are better opportunities than TASK.

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