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. That said, here are three cash-producing companies to avoid and some better opportunities instead.
Marvell Technology (MRVL)
Trailing 12-Month Free Cash Flow Margin: 24.2%
Moving away from a low margin storage device management chips in one of the biggest semiconductor business model pivots of the past decade, Marvell Technology (NASDAQ: MRVL) is a fabless designer of special purpose data processing and networking chips used by data centers, communications carriers, enterprises, and autos.
Why Does MRVL Give Us Pause?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.3% annually over the last two years
- Persistent operating losses suggest the business manages its expenses poorly
- Push for growth has led to negative returns on capital, signaling value destruction, and its falling returns suggest its earlier profit pools are drying up
At $59.80 per share, Marvell Technology trades at 21.4x forward P/E. Dive into our free research report to see why there are better opportunities than MRVL.
Expeditors (EXPD)
Trailing 12-Month Free Cash Flow Margin: 6.9%
Expeditors (NYSE: EXPD) offers air and ocean freight as well as brokerage services.
Why Do We Steer Clear of EXPD?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 14.1% annually over the last two years
- Earnings per share have dipped by 11.2% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Expeditors’s stock price of $109.10 implies a valuation ratio of 20.1x forward P/E. Read our free research report to see why you should think twice about including EXPD in your portfolio.
Cognex (CGNX)
Trailing 12-Month Free Cash Flow Margin: 17.7%
Founded in 1981 when computer vision was in its infancy, Cognex (NASDAQ: CGNX) develops machine vision systems and software that help manufacturers and logistics companies automate quality inspection and tracking of products.
Why Do We Pass on CGNX?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 12.2 percentage points
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Cognex is trading at $29.47 per share, or 32.7x forward P/E. Check out our free in-depth research report to learn more about why CGNX doesn’t pass our bar.
Stocks We Like More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Growth Stocks for this month. 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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.
