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.
Seagate Technology (STX)
Trailing 12-Month Free Cash Flow Margin: 9.1%
The developer of the original 5.25inch hard disk drive, Seagate (NASDAQ:STX) is a leading producer of data storage solutions, including hard drives and Solid State Drives (SSDs) used in PCs and data centers.
Why Does STX Worry Us?
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Annual sales declines of 3.8% for the past five years show its products and services struggled to connect with the market during this cycle
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Gross margin of 28.4% reflects its high production costs
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Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Seagate Technology’s stock price of $141.01 implies a valuation ratio of 15.9x forward P/E. Check out our free in-depth research report to learn more about why STX doesn’t pass our bar.
Roku (ROKU)
Trailing 12-Month Free Cash Flow Margin: 7.1%
Spun out from Netflix, Roku (NASDAQ: ROKU) makes hardware players that offer access to various online streaming TV services.
Why Are We Cautious About ROKU?
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Customer spending has dipped by 1.4% on average as it focused on growing its users
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Expenses have increased as a percentage of revenue over the last few years as its EBITDA margin fell by 7.1 percentage points
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Incremental sales over the last three years were much less profitable as its earnings per share fell by 36.7% annually while its revenue grew
At $87 per share, Roku trades at 34.9x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than ROKU.
Tutor Perini (TPC)
Trailing 12-Month Free Cash Flow Margin: 8.2%
Known for constructing the Philadelphia Eagles’ Stadium, Tutor Perini (NYSE:TPC) is a civil and building construction company offering diversified general contracting and design-build services.
Why Are We Hesitant About TPC?
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Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
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Gross margin of 6.1% reflects its high production costs
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Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Tutor Perini is trading at $47.36 per share, or 23x forward P/E. To fully understand why you should be careful with TPC, check out our full research report (it’s free).
Story ContinuesHigh-Quality Stocks for All Market Conditions
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 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
