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3 Cash-Producing Stocks with Mounting Challenges

By: StockStory

May 12, 2025 at 00:44 AM EDT

SMTC Cover Image

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. That said, here are three cash-producing companies to avoid and some better opportunities instead.

Semtech (SMTC)

Trailing 12-Month Free Cash Flow Margin: 5.5%

A public company since the late 1960s, Semtech (NASDAQ: SMTC) is a provider of analog and mixed-signal semiconductors used for Internet of Things systems and cloud connectivity.

Why Do We Steer Clear of SMTC?

Persistent operating losses and eroding margin over the last five years point to its preference for growth over profits
Increased cash burn over the last five years raises questions about the return timeline for its investments
Negative returns on capital show that some of its growth strategies have backfired, and its falling returns suggest its earlier profit pools are drying up

Semtech’s stock price of $35 implies a valuation ratio of 20.8x forward P/E. Check out our free in-depth research report to learn more about why SMTC doesn’t pass our bar.

Victoria's Secret (VSCO)

Trailing 12-Month Free Cash Flow Margin: 4%

Spun off from L Brands in 2020, Victoria’s Secret (NYSE: VSCO) is an intimate clothing and beauty retailer that sells its own brands of lingerie, undergarments, and personal fragrances.

Why Are We Wary of VSCO?

Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
Estimated sales for the next 12 months are flat and imply a softer demand environment
Responsiveness to unforeseen market trends is restricted due to its substandard operating profitability

At $19.50 per share, Victoria's Secret trades at 6.9x forward P/E. If you’re considering VSCO for your portfolio, see our FREE research report to learn more.

Lovesac (LOVE)

Trailing 12-Month Free Cash Flow Margin: 2.6%

Known for its oversized, premium beanbags, Lovesac (NASDAQ: LOVE) is a specialty furniture brand selling modular furniture.

Why Does LOVE Worry Us?

Muted 2.2% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 1.5 percentage points
Diminishing returns on capital suggest its earlier profit pools are drying up

Lovesac is trading at $21 per share, or 44.1x forward P/E. Dive into our free research report to see why there are better opportunities than LOVE.

Stocks That Overcame Trump’s 2018 Tariffs

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.

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 Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.