Generating cash is essential for any business, but not all cash-rich companies are great investments. Some produce plenty of cash but fail to allocate it effectively, leading to missed opportunities.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. Keeping that in mind, here are three cash-producing companies to steer clear of and a few better alternatives.
Allegro MicroSystems (ALGM)
Trailing 12-Month Free Cash Flow Margin: 7.4%
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 Wary of ALGM?
- Sales tumbled by 14.2% annually over the last two years, showing market trends are working against its favor during this cycle
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 15.6% annually
- Low free cash flow margin of 7.8% declined over the last five years as its investments ramped, giving it little breathing room
Allegro MicroSystems is trading at $26.54 per share, or 35.2x forward P/E. Check out our free in-depth research report to learn more about why ALGM doesn’t pass our bar.
Nature's Sunshine (NATR)
Trailing 12-Month Free Cash Flow Margin: 6.6%
Started on a kitchen table in Utah, Nature’s Sunshine (NASDAQ:NATR) manufactures and sells nutritional and personal care products.
Why Is NATR Not Exciting?
- Lackluster 2.8% annual revenue growth over the last three years indicates the company is losing ground to competitors
- Modest revenue base of $474.5 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Anticipated sales growth of 3.1% for the next year implies demand will be shaky
Nature's Sunshine’s stock price of $20.66 implies a valuation ratio of 22.1x forward P/E. Dive into our free research report to see why there are better opportunities than NATR.
PVH (PVH)
Trailing 12-Month Free Cash Flow Margin: 5.9%
Founded in 1881 by a husband and wife duo, PVH (NYSE:PVH) is a global fashion conglomerate with iconic brands like Calvin Klein and Tommy Hilfiger.
Why Do We Avoid PVH?
- Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
- Estimated sales growth of 2.5% for the next 12 months is soft and implies weaker demand
- Underwhelming 1.3% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up
At $79.91 per share, PVH trades at 6.8x forward P/E. To fully understand why you should be careful with PVH, check out our full research report (it’s free for active Edge members).
Stocks We Like More
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 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
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