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.
Bath and Body Works (BBWI)
Trailing 12-Month Free Cash Flow Margin: 12.9%
Spun off from L Brands in 2020, Bath & Body Works (NYSE: BBWI) is a personal care and home fragrance retailer where consumers can find specialty shower gels, scented candles for the home, and lotions.
Why Are We Cautious About BBWI?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Earnings per share have contracted by 5.3% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
At $20.20 per share, Bath and Body Works trades at 7.6x forward P/E. Read our free research report to see why you should think twice about including BBWI in your portfolio.
Wolverine Worldwide (WWW)
Trailing 12-Month Free Cash Flow Margin: 2.9%
Founded in 1883, Wolverine Worldwide (NYSE: WWW) is a global footwear company with a diverse portfolio of brands including Merrell, Hush Puppies, and Saucony.
Why Do We Pass on WWW?
- Sales were flat over the last five years, indicating it’s failed to expand its business
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Wolverine Worldwide is trading at $18.15 per share, or 13.9x forward P/E. If you’re considering WWW for your portfolio, see our FREE research report to learn more.
Quanex (NX)
Trailing 12-Month Free Cash Flow Margin: 5.6%
Starting in the seamless tube industry, Quanex (NYSE: NX) manufactures building products like window, door, kitchen, and bath cabinet components.
Why Does NX Worry Us?
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 18.2 percentage points
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 8.5% annually
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Quanex’s stock price of $15.38 implies a valuation ratio of 7.4x forward P/E. Dive into our free research report to see why there are better opportunities than NX.
Stocks We Like More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 5 Strong Momentum Stocks for this week. 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 Comfort Systems (+782% 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.
