3 Cash-Producing Stocks with Mounting Challenges

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?

1. 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
2. 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?

1. 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
2. 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
3. 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?

1. 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
2. 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
3. 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).

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.