3 Cash-Producing Stocks Walking a Fine Line

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 that don’t make the cut and some better opportunities instead.

Hologic (HOLX)

Trailing 12-Month Free Cash Flow Margin: 28.4%

As a pioneer in 3D mammography technology that has revolutionized breast cancer detection, Hologic (NASDAQ:HOLX) develops and manufactures diagnostic products, medical imaging systems, and surgical devices focused primarily on women's health and wellness.

Why Do We Think Twice About HOLX?

1. Weak constant currency growth over the past two years indicates challenges in maintaining its market share
2. Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 18.3 percentage points
3. Eroding returns on capital suggest its historical profit centers are aging

At $56.77 per share, Hologic trades at 13x forward price-to-earnings. If you’re considering HOLX for your portfolio, see our FREE research report to learn more.

Telephone and Data Systems (TDS)

Trailing 12-Month Free Cash Flow Margin: 5.3%

Operating primarily through its majority-owned subsidiary UScellular and wholly-owned TDS Telecom, Telephone and Data Systems (NYSE:TDS) provides wireless, broadband, video, and voice communications services to 4.6 million wireless and 1.2 million broadband customers across the United States.

Why Are We Out on TDS?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.3% annually over the last four years
2. Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
3. High net-debt-to-EBITDA ratio of 23× increases the risk of forced asset sales or dilutive financing if operational performance weakens

Telephone and Data Systems is trading at $35.09 per share, or 2.9x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than TDS.

HP (HPQ)

Trailing 12-Month Free Cash Flow Margin: 6.1%

Born from the legendary Silicon Valley garage startup founded by Bill Hewlett and Dave Packard in 1939, HP (NYSE:HPQ) designs and sells personal computers, printers, and related technology products and services to consumers, businesses, and enterprises worldwide.

Why Is HPQ Risky?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.7% annually over the last five years
2. Anticipated sales growth of 1.8% for the next year implies demand will be shaky
3. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term

HP’s stock price of $24.08 implies a valuation ratio of 6.4x forward price-to-earnings. Check out our free in-depth research report to learn more about why HPQ doesn’t pass our bar.

Stocks We Like More

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 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.