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. Keeping that in mind, here are three cash-producing companies to steer clear of and a few better alternatives.

Tapestry (TPR)

Trailing 12-Month Free Cash Flow Margin: 22.4%

Originally founded as Coach, Tapestry (NYSE: TPR) is an American fashion conglomerate with a portfolio of luxury brands offering high-quality accessories and fashion products.

Why Do We Pass on TPR?

1. Constant currency revenue growth has disappointed over the past two years and shows demand was soft
2. Subpar operating margin of 14.4% constrains its ability to invest in process improvements or effectively respond to new competitive threats
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

At $141.31 per share, Tapestry trades at 18.9x forward P/E. Check out our free in-depth research report to learn more about why TPR doesn’t pass our bar.

MillerKnoll (MLKN)

Trailing 12-Month Free Cash Flow Margin: 5.2%

Created through the 2021 merger of industry icons Herman Miller and Knoll, MillerKnoll (NASDAQ: MLKN) designs, manufactures, and distributes interior furnishings for offices, healthcare facilities, educational settings, and homes worldwide.

Why Are We Cautious About MLKN?

1. Annual revenue growth of 2.9% over the last two years was below our standards for the business services sector
2. Issuance of new shares over the last five years caused its earnings per share to fall by 11% annually while its revenue grew
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 2.9% for the last five years

MillerKnoll is trading at $21.82 per share, or 10.9x forward P/E. If you’re considering MLKN for your portfolio, see our FREE research report to learn more.

Perella Weinberg (PWP)

Trailing 12-Month Free Cash Flow Margin: 14%

Founded in 2006 by veteran investment bankers Joseph Perella and Peter Weinberg during a wave of boutique advisory firm launches, Perella Weinberg Partners (NASDAQ: PWP) is a global independent advisory firm that provides strategic and financial advice to corporations, financial sponsors, and government institutions.

Why Are We Out on PWP?

1. 2.9% annual revenue growth over the last five years was slower than its financials peers
2. Falling earnings per share over the last four years has some investors worried as stock prices ultimately follow EPS over the long term
3. Push for growth has led to negative returns on capital, signaling value destruction

Perella Weinberg’s stock price of $15.89 implies a valuation ratio of 14.5x forward P/E. Read our free research report to see why you should think twice about including PWP in your portfolio.

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