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.

Dine Brands (DIN)

Trailing 12-Month Free Cash Flow Margin: 10.2%

Operating a franchise model, Dine Brands (NYSE: DIN) is a casual restaurant chain that owns the Applebee’s and IHOP banners.

Why Do We Steer Clear of DIN?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
2. Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 6.7 percentage points
3. High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Dine Brands’s stock price of $34.47 implies a valuation ratio of 7.3x forward P/E. Read our free research report to see why you should think twice about including DIN in your portfolio.

Simpson (SSD)

Trailing 12-Month Free Cash Flow Margin: 10.3%

Aiming to build safer and stronger buildings, Simpson (NYSE: SSD) designs and manufactures structural connectors, anchors, and other construction products.

Why Are We Hesitant About SSD?

1. 2.8% annual revenue growth over the last two years was slower than its industrials peers
2. Incremental sales over the last two years were much less profitable as its earnings per share fell by 4% annually while its revenue grew
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Simpson is trading at $168.89 per share, or 19.9x forward P/E. If you’re considering SSD for your portfolio, see our FREE research report to learn more.

Zebra (ZBRA)

Trailing 12-Month Free Cash Flow Margin: 15.1%

Taking its name from the black and white stripes of barcodes, Zebra Technologies (NASDAQ: ZBRA) provides barcode scanners, mobile computers, RFID systems, and other data capture technologies that help businesses track assets and optimize operations.

Why Does ZBRA Give Us Pause?

1. 1.7% annual revenue growth over the last two years was slower than its business services peers
2. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
3. 7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

At $262.81 per share, Zebra trades at 15.6x forward P/E. Dive into our free research report to see why there are better opportunities than ZBRA.

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