A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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 that don’t make the cut and some better opportunities instead.
DigitalOcean (DOCN)
Trailing 12-Month Free Cash Flow Margin: 12.3%
Started by brothers Ben and Moisey Uretsky, DigitalOcean (NYSE: DOCN) provides a simple, low-cost platform that allows developers and small and medium-sized businesses to host applications and data in the cloud.
Why Are We Hesitant About DOCN?
- Customers have churned over the last year due to the commoditized nature of its software, as reflected in its 98.2% net revenue retention rate
- Gross margin of 59.9% reflects its high servicing costs
DigitalOcean is trading at $29.20 per share, or 3.2x forward price-to-sales. If you’re considering DOCN for your portfolio, see our FREE research report to learn more.
Allegro MicroSystems (ALGM)
Trailing 12-Month Free Cash Flow Margin: 3%
The result of a spinoff from Sanken in Japan, Allegro MicroSystems (NASDAQ: ALGM) is a designer of power management chips and distance sensors used in electric vehicles and data centers.
Why Are We Out on ALGM?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 13.7% annually over the last two years
- Earnings per share have dipped by 16.8% annually over the past four years, which is concerning because stock prices follow EPS over the long term
- 10.5 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
At $30.25 per share, Allegro MicroSystems trades at 59.5x forward P/E. To fully understand why you should be careful with ALGM, check out our full research report (it’s free).
Corning (GLW)
Trailing 12-Month Free Cash Flow Margin: 9.3%
Supplying windows for some of the United States’s earliest spacecraft, Corning (NYSE: GLW) provides glass and other electronic components for the consumer electronics, telecommunications, automotive, and healthcare industries.
Why Do We Pass on GLW?
- Annual sales growth of 1.8% over the last two years lagged behind its industrials peers as its large revenue base made it difficult to generate incremental demand
- 4.2 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
- ROIC of 5.2% reflects management’s challenges in identifying attractive investment opportunities, and its falling returns suggest its earlier profit pools are drying up
Corning’s stock price of $50.25 implies a valuation ratio of 21.1x forward P/E. If you’re considering GLW for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like 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).
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