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. That said, here are three cash-producing companies to steer clear of and a few better alternatives.

Stitch Fix (SFIX)

Trailing 12-Month Free Cash Flow Margin: 1.1%

One of the original subscription box companies, Stitch Fix (NASDAQ:SFIX) is an online personal styling and fashion service that curates personalized clothing selections for customers.

Why Is SFIX Risky?

1. Number of active clients has disappointed over the past two years, indicating weak demand for its offerings
2. Historical operating losses point to an inefficient cost structure
3. Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 31.9% annually, worse than its revenue

Stitch Fix’s stock price of $3.25 implies a valuation ratio of 11.8x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SFIX doesn’t pass our bar.

Energizer (ENR)

Trailing 12-Month Free Cash Flow Margin: 7.6%

Masterminds behind the viral Energizer Bunny mascot, Energizer (NYSE:ENR) is one of the world's largest manufacturers of batteries.

Why Are We Out on ENR?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Projected sales growth of 1.3% for the next 12 months suggests sluggish demand
3. 4 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position

At $26.62 per share, Energizer trades at 7.5x forward P/E. Read our free research report to see why you should think twice about including ENR in your portfolio, it’s free.

Watsco (WSO)

Trailing 12-Month Free Cash Flow Margin: 6.1%

Originally a manufacturing company, Watsco (NYSE:WSO) today only distributes air conditioning, heating, and refrigeration equipment, as well as related parts and supplies.

Why Is WSO Not Exciting?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Earnings per share fell by 5.4% annually over the last two years while its revenue grew, partly because it diluted shareholders
3. Waning returns on capital imply its previous profit engines are losing steam

Watsco is trading at $457 per share, or 30.9x forward P/E. Dive into our free research report to see why there are better opportunities than WSO.

Stocks We Like More

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.