While strong cash flow is a key indicator of stability, it doesn’t always translate to superior returns. Some cash-heavy businesses struggle with inefficient spending, slowing demand, or weak competitive positioning.

Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.

Skyworks Solutions (SWKS)

Trailing 12-Month Free Cash Flow Margin: 27.1%

Result of a merger of Alpha Industries and the wireless communications division of Conexant, Skyworks Solutions (NASDAQ: SWKS) is a designer and manufacturer of chips used in smartphones, autos, and industrial applications to amplify, filter, and process wireless signals.

Why Do We Pass on SWKS?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.5% annually over the last two years
2. Forecasted revenue decline of 10.7% for the upcoming 12 months implies demand will fall even further
3. Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 19.3 percentage points

Skyworks Solutions’s stock price of $63.99 implies a valuation ratio of 14.5x forward P/E. Check out our free in-depth research report to learn more about why SWKS doesn’t pass our bar.

J&J Snack Foods (JJSF)

Trailing 12-Month Free Cash Flow Margin: 5.2%

Best known for its SuperPretzel soft pretzels and ICEE frozen drinks, J&J Snack Foods (NASDAQ: JJSF) produces a range of snacks and beverages and distributes them primarily to supermarket and food service customers.

Why Are We Hesitant About JJSF?

1. Sales trends were unexciting over the last three years as its 4.7% annual growth was below the typical consumer staples company
2. Modest revenue base of $1.58 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
3. Estimated sales growth of 2.1% for the next 12 months implies demand will slow from its three-year trend

J&J Snack Foods is trading at $89.84 per share, or 20x forward P/E. Dive into our free research report to see why there are better opportunities than JJSF.

CSG (CSGS)

Trailing 12-Month Free Cash Flow Margin: 15%

Powering billions of critical customer interactions annually, CSG Systems (NASDAQ: CSGS) provides cloud-based software platforms that help companies manage customer interactions, process payments, and monetize their services.

Why Does CSGS Give Us Pause?

1. Muted 1.6% annual revenue growth over the last two years shows its demand lagged behind its business services peers
2. Estimated sales growth of 1.5% for the next 12 months is soft and implies weaker demand
3. Eroding returns on capital suggest its historical profit centers are aging

At $76.70 per share, CSG trades at 15.4x forward P/E. Read our free research report to see why you should think twice about including CSGS in your portfolio.

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