A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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 steer clear of and a few better alternatives.
Gap (GAP)
Trailing 12-Month Free Cash Flow Margin: 5.1%
Operating under the Gap, Old Navy, Banana Republic, and Athleta brands, Gap (NYSE:GAP) is an apparel and accessories retailer selling casual clothing to men, women, and children.
Why Are We Cautious About GAP?
- Products aren't resonating with the market as its revenue declined by 1.3% annually over the last three years
- Free cash flow margin shrank by 2.2 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Gap’s stock price of $27.17 implies a valuation ratio of 11.8x forward P/E. To fully understand why you should be careful with GAP, check out our full research report (it’s free).
Restaurant Brands (QSR)
Trailing 12-Month Free Cash Flow Margin: 15.1%
Formed through a strategic merger, Restaurant Brands International (NYSE:QSR) is a multinational corporation that owns three iconic fast-food chains: Burger King, Tim Hortons, and Popeyes.
Why Does QSR Give Us Pause?
- Estimated sales growth of 4.3% for the next 12 months implies demand will slow from its six-year trend
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 4.5 percentage points
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Restaurant Brands is trading at $68.15 per share, or 17.4x forward P/E. Check out our free in-depth research report to learn more about why QSR doesn’t pass our bar.
Benchmark (BHE)
Trailing 12-Month Free Cash Flow Margin: 2.9%
Operating as a critical behind-the-scenes partner for complex technology products since 1979, Benchmark Electronics (NYSE:BHE) provides advanced manufacturing, engineering, and technology solutions for original equipment manufacturers across aerospace, medical, industrial, and technology sectors.
Why Do We Think Twice About BHE?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.1% annually over the last two years
- Earnings per share lagged its peers over the last two years as they only grew by 5.4% annually
- Low free cash flow margin of 0.9% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $51.63 per share, Benchmark trades at 20.5x forward P/E. To fully understand why you should be careful with BHE, check out our full research report (it’s free).
Stocks We Like More
Check out the high-quality names we’ve flagged 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 Exlservice (+354% five-year return). Find your next big winner with StockStory today.