A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here are three cash-producing companies to avoid and some better opportunities instead.
RH (RH)
Trailing 12-Month Free Cash Flow Margin: 3.8%
Formerly known as Restoration Hardware, RH (NYSE:RH) is a specialty retailer that exclusively sells its own brand of high-end furniture and home decor.
Why Does RH Fall Short?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
- High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens
RH is trading at $161.80 per share, or 16.4x forward P/E. Dive into our free research report to see why there are better opportunities than RH.
Alamo (ALG)
Trailing 12-Month Free Cash Flow Margin: 9.3%
Expanding its markets through acquisitions since its founding, Alamo (NSYE:ALG) designs, manufactures, and services vegetation management and infrastructure maintenance equipment for governmental, industrial, and agricultural use.
Why Are We Cautious About ALG?
- Sales tumbled by 1.3% annually over the last two years, showing market trends are working against its favor during this cycle
- High input costs result in an inferior gross margin of 25.5% that must be offset through higher volumes
- Earnings per share have contracted by 5.7% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
Alamo’s stock price of $177.56 implies a valuation ratio of 15.5x forward P/E. Check out our free in-depth research report to learn more about why ALG doesn’t pass our bar.
Gartner (IT)
Trailing 12-Month Free Cash Flow Margin: 18.8%
With over 2,500 research experts guiding organizations through complex technology landscapes, Gartner (NYSE:IT) provides research, advisory services, and conferences that help executives make better decisions about technology and other business priorities.
Why Does IT Worry Us?
- Estimated sales growth of 2.8% for the next 12 months implies demand will slow from its two-year trend
- Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 4.4 percentage points
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 9.3 percentage points
At $234.63 per share, Gartner trades at 17.7x forward P/E. If you’re considering IT for your portfolio, see our FREE research report to learn more.
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 6 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 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
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