A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.

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.

Himax (HIMX)

Trailing 12-Month Free Cash Flow Margin: 14.4%

Taiwan-based Himax Technologies (NASDAQ: HIMX) is a leading manufacturer of display driver chips and timing controllers used in TVs, laptops, and mobile phones.

Why Do We Avoid HIMX?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.3% annually over the last five years
2. High input costs result in an inferior gross margin of 30.5% that must be offset through higher volumes
3. Overall productivity fell over the last five years as its plummeting sales were accompanied by a decline in its operating margin

Himax is trading at $10.36 per share, or 38.1x forward P/E. Check out our free in-depth research report to learn more about why HIMX doesn’t pass our bar.

Kraft Heinz (KHC)

Trailing 12-Month Free Cash Flow Margin: 14.7%

The result of a 2015 mega-merger between Kraft and Heinz, Kraft Heinz (NASDAQ: KHC) is a packaged foods giant whose products span coffee to cheese to packaged meat.

Why Do We Think KHC Will Underperform?

1. Declining unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
2. Sales are projected to tank by 2% over the next 12 months as its demand continues evaporating
3. Operating margin declined by 25.2 percentage points over the last year as its sales cratered

At $22.39 per share, Kraft Heinz trades at 11.4x forward P/E. Dive into our free research report to see why there are better opportunities than KHC.

Bio-Techne (TECH)

Trailing 12-Month Free Cash Flow Margin: 18.3%

With a catalog of hundreds of thousands of specialized biological products used in laboratories worldwide, Bio-Techne (NASDAQ: TECH) develops and manufactures specialized reagents, instruments, and services that help researchers study biological processes and enable diagnostic testing and cell therapy development.

Why Should You Dump TECH?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Revenue base of $1.22 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 11.6 percentage points

Bio-Techne’s stock price of $51.38 implies a valuation ratio of 26x forward P/E. To fully understand why you should be careful with TECH, check out our full research report (it’s free).

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