Generating cash is essential for any business, but not all cash-rich companies are great investments. Some produce plenty of cash but fail to allocate it effectively, leading to missed opportunities.

Not all companies are created equal, and StockStory is here to surface the ones with real upside. Keeping that in mind, here are three cash-producing companies to steer clear of and a few better alternatives.

Caleres (CAL)

Trailing 12-Month Free Cash Flow Margin: 1.4%

The owner of Dr. Scholl's, Caleres (NYSE:CAL) is a footwear company offering a range of styles.

Why Is CAL Risky?

1. Annual revenue growth of 5.4% over the last five years was below our standards for the consumer discretionary sector

2. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

3. 8× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

Caleres’s stock price of $13.09 implies a valuation ratio of 8.6x forward P/E. To fully understand why you should be careful with CAL, check out our full research report (it’s free) .

Smith & Wesson (SWBI)

Trailing 12-Month Free Cash Flow Margin: 11.2%

With a history dating back to 1852, Smith & Wesson (NASDAQ:SWBI) is a firearms manufacturer known for its handguns and rifles.

Why Should You Sell SWBI?

1. Sales tumbled by 12.2% annually over the last five years, showing consumer trends are working against its favor

2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

Smith & Wesson is trading at $15.28 per share, or 48.2x forward P/E. Read our free research report to see why you should think twice about including SWBI in your portfolio, it’s free .

Haemonetics (HAE)

Trailing 12-Month Free Cash Flow Margin: 23.4%

With roots dating back to 1971 and a mission to improve blood-related healthcare, Haemonetics (NYSE:HAE) provides specialized medical devices and software for blood collection, processing, and management across plasma centers, blood banks, and hospitals.

Why Are We Wary of HAE?

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. Smaller revenue base of $1.32 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy

3. ROIC of 6.6% reflects management’s challenges in identifying attractive investment opportunities