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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.

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 steer clear of and a few better alternatives.

IPG Photonics (IPGP)

Trailing 12-Month Free Cash Flow Margin: 11.7%

Both a designer and manufacturer of its products, IPG Photonics (NASDAQ:IPGP) is a provider of high-performance fiber lasers used for cutting, welding, and processing raw materials.

Why Should You Sell IPGP?

1. Sales tumbled by 5.3% annually over the last five years, showing market trends are working against its favor during this cycle

2. Operating profits fell over the last five years as its sales dropped and it struggled to adjust its fixed costs

3. Sales were less profitable over the last five years as its earnings per share fell by 19.8% annually, worse than its revenue declines

At $65.51 per share, IPG Photonics trades at 40.6x forward P/E. Dive into our free research report to see why there are better opportunities than IPGP.

MGM Resorts (MGM)

Trailing 12-Month Free Cash Flow Margin: 6.7%

Operating several properties on the Las Vegas Strip, MGM Resorts (NYSE:MGM) is a global hospitality and entertainment company known for its resorts and casinos.

Why Do We Steer Clear of MGM?

1. Sizable revenue base leads to growth challenges as its 7.4% annual revenue increases over the last five years fell short of other consumer discretionary companies

2. Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend

3. 12× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

MGM Resorts is trading at $33.72 per share, or 15x forward P/E. Read our free research report to see why you should think twice about including MGM in your portfolio, it’s free.

Advanced Energy (AEIS)

Trailing 12-Month Free Cash Flow Margin: 6.3%

Pioneering technologies for radio frequency power delivery, Advanced Energy (NASDAQ:AEIS) provides power supplies, thermal management systems, and measurement and control instruments for various manufacturing processes.

Why Do We Think AEIS Will Underperform?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 8.8% annually over the last two years

2. 6.6 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

3. Waning returns on capital imply its previous profit engines are losing steam