A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here are three cash-producing companies to steer clear of and a few better alternatives.
Amazon (AMZN)
Trailing 12-Month Free Cash Flow Margin: 4%
Founded by Jeff Bezos after quitting his stock-picking job at D.E. Shaw, Amazon (NASDAQ:AMZN) is the world’s largest online retailer and provider of cloud computing services.
Why Does AMZN Worry Us?
- Amazon revolutionized the way consumers shop. But its capital-intensive online retail business caps its profitability, leading to margins that lag behind its Magnificent 7 peers.
- Although Amazon Web Services is a gold mine producing mission-critical infrastructure, its outsized scale limits its growth rate compared to smaller peers such as Microsoft Azure and Google Cloud Platform.
- Returns on invested capital are well below their pre-COVID peak as the company is in the middle of an investment cycle. Will Amazon ever harvest profits or keep pushing them to the future?
At $211.81 per share, Amazon trades at 33.2x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than AMZN.
Hexcel (HXL)
Trailing 12-Month Free Cash Flow Margin: 9.7%
Founded shortly after World War II by a group of engineers from UC Berkley, Hexcel (NYSE:HXL) manufactures lightweight composite materials primarily for the aerospace and defense sectors.
Why Do We Think Twice About HXL?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.8% annually over the last five years
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- Free cash flow margin dropped by 8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Hexcel is trading at $54.75 per share, or 24.1x forward P/E. If you’re considering HXL for your portfolio, see our FREE research report to learn more.
American Woodmark (AMWD)
Trailing 12-Month Free Cash Flow Margin: 3.8%
Starting as a small millwork shop, American Woodmark (NASDAQ:AMWD) is a cabinet manufacturing company that helps customers from inspiration to installation.
Why Is AMWD Risky?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 9% annually over the last two years
- Forecasted revenue decline of 3.1% for the upcoming 12 months implies demand will fall even further
- Earnings per share have contracted by 6.7% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
American Woodmark’s stock price of $52.91 implies a valuation ratio of 8.5x forward P/E. Check out our free in-depth research report to learn more about why AMWD doesn’t pass our bar.
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