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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here are three cash-producing companies to avoid and some better opportunities instead.
Western Digital (WDC)
Trailing 12-Month Free Cash Flow Margin: 19.2%
Founded in 1970 by a Motorola employee, Western Digital (NASDAQ: WDC) is a leading producer of hard disk drives, SSDs and flash memory.
Why Does WDC Give Us Pause?
- Annual sales declines of 9.4% for the past five years show its products and services struggled to connect with the market during this cycle
- Gross margin of 14.9% is below its competitors, leaving less money to invest in areas like marketing and R&D
- ROIC of 6.6% reflects management’s challenges in identifying attractive investment opportunities
Western Digital is trading at $170.50 per share, or 21.2x forward P/E. Read our free research report to see why you should think twice about including WDC in your portfolio.
Accel Entertainment (ACEL)
Trailing 12-Month Free Cash Flow Margin: 3.7%
Established in Illinois, Accel Entertainment (NYSE: ACEL) is a provider of electronic gaming machines and interactive amusement terminals to bars and entertainment venues.
Why Do We Think Twice About ACEL?
- Demand for its offerings was relatively low as its number of video gaming terminals sold has underwhelmed
- Estimated sales growth of 4.9% for the next 12 months implies demand will slow from its two-year trend
- Low free cash flow margin of 4.8% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $10.47 per share, Accel Entertainment trades at 10.4x forward P/E. To fully understand why you should be careful with ACEL, check out our full research report (it’s free for active Edge members).
Dover (DOV)
Trailing 12-Month Free Cash Flow Margin: 12.8%
A company that manufactured critical equipment for the United States military during World War II, Dover (NYSE: DOV) manufactures engineered components and specialized equipment for numerous industries.
Why Does DOV Worry Us?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.7% annually
- Diminishing returns on capital suggest its earlier profit pools are drying up
Dover’s stock price of $184.73 implies a valuation ratio of 17.8x forward P/E. Dive into our free research report to see why there are better opportunities than DOV.
High-Quality Stocks for All Market Conditions
Fresh US-China trade tensions just tanked stocks—but strong bank earnings are fueling a sharp rebound. Don’t miss the bounce.
Don’t let fear keep you from great opportunities and take a look at Top 5 Growth Stocks for this month. 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-micro-cap company Kadant (+351% 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
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.
