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.
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.
Udemy (UDMY)
Trailing 12-Month Free Cash Flow Margin: 3.5%
With courses ranging from investing to cooking to computer programming, Udemy (NASDAQ:UDMY) is an online learning platform that connects learners with expert instructors who specialize in a wide range of topics.
Why Are We Cautious About UDMY?
- Decision to emphasize platform growth over monetization has contributed to 1.6% annual declines in its average revenue per buyer
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
- High marketing expenses suggest it needs to spend heavily on new customer acquisition to sustain momentum
At $7 per share, Udemy trades at 11.4x forward EV/EBITDA. To fully understand why you should be careful with UDMY, check out our full research report (it’s free).
Latham (SWIM)
Trailing 12-Month Free Cash Flow Margin: 6%
Started as a family business, Latham (NASDAQ:SWIM) is a global designer and manufacturer of in-ground residential swimming pools and related products.
Why Does SWIM Fall Short?
- Products and services have few die-hard fans as sales have declined by 10.9% annually over the last two years
- Earnings per share fell by 20.2% annually over the last four years while its revenue was flat, showing each sale was less profitable
- Push for growth has led to negative returns on capital, signaling value destruction
Latham is trading at $6.50 per share, or 44.9x forward P/E. Check out our free in-depth research report to learn more about why SWIM doesn’t pass our bar.
3M (MMM)
Trailing 12-Month Free Cash Flow Margin: 18.6%
Producers of the first asthma inhaler, 3M Company (NYSE:MMM) is a global conglomerate known for products in industries like healthcare, safety, electronics, and consumer goods.
Why Should You Dump MMM?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Earnings per share have dipped by 3.4% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
3M’s stock price of $152.98 implies a valuation ratio of 19.6x forward P/E. If you’re considering MMM for your portfolio, see our FREE research report to learn more.
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 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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free.