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.
Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here are three cash-producing companies to avoid and some better opportunities instead.
Red Rock Resorts (RRR)
Trailing 12-Month Free Cash Flow Margin: 12.6%
Founded in 1976, Red Rock Resorts (NASDAQ: RRR) operates a range of casino resorts and entertainment properties, primarily in the Las Vegas metropolitan area.
Why Do We Steer Clear of RRR?
- Lackluster 11.8% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 13.8% for the last two years
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Red Rock Resorts is trading at $53.50 per share, or 18x forward P/E. Check out our free in-depth research report to learn more about why RRR doesn’t pass our bar.
Nordson (NDSN)
Trailing 12-Month Free Cash Flow Margin: 22.7%
Founded in 1954, Nordson Corporation (NASDAQ: NDSN) manufactures dispensing equipment and industrial adhesives, sealants and coatings.
Why Are We Cautious About NDSN?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Projected sales growth of 4.6% for the next 12 months suggests sluggish demand
- Eroding returns on capital suggest its historical profit centers are aging
Nordson’s stock price of $281.39 implies a valuation ratio of 25x forward P/E. To fully understand why you should be careful with NDSN, check out our full research report (it’s free).
American Woodmark (AMWD)
Trailing 12-Month Free Cash Flow Margin: 2.4%
Starting as a small millwork shop, American Woodmark (NASDAQ: AMWD) is a cabinet manufacturing company that helps customers from inspiration to installation.
Why Do We Pass on AMWD?
- Annual sales declines of 1.8% for the past five years show its products and services struggled to connect with the market during this cycle
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Earnings per share have contracted by 9.9% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
At $39.50 per share, American Woodmark trades at 25.6x forward P/E. Read our free research report to see why you should think twice about including AMWD in your portfolio.
High-Quality Stocks for All Market Conditions
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662%. AppLovin before it ran 753%. Nvidia before it ran 1,178%. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.
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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
