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. That said, 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: 14.3%
Built for simplicity in a world of complex cloud solutions, DigitalOcean (NYSE: DOCN) provides a simplified cloud computing platform that enables developers and small businesses to quickly deploy and scale applications.
Why Is DOCN Not Exciting?
- 19.2% annual revenue growth over the last three years was slower than its software peers
- Customers have churned over the last year due to the commoditized nature of its software, as reflected in its 98.8% net revenue retention rate
- Bad unit economics and steep infrastructure costs are reflected in its gross margin of 59.7%, one of the worst among software companies
DigitalOcean’s stock price of $31.76 implies a valuation ratio of 3.3x forward price-to-sales. If you’re considering DOCN for your portfolio, see our FREE research report to learn more.
BD (BDX)
Trailing 12-Month Free Cash Flow Margin: 11.9%
With a history dating back to 1897 and a presence in virtually every hospital around the globe, Becton Dickinson (NYSE: BDX) develops and manufactures medical supplies, devices, laboratory equipment and diagnostic products used by healthcare institutions and professionals worldwide.
Why Does BDX Worry Us?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 5.5% over the last five years was below our standards for the healthcare sector
- Free cash flow margin shrank by 10.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Underwhelming 4.5% return on capital reflects management’s difficulties in finding profitable growth opportunities
BD is trading at $197.88 per share, or 13.8x forward P/E. Dive into our free research report to see why there are better opportunities than BDX.
CDW (CDW)
Trailing 12-Month Free Cash Flow Margin: 4.7%
Serving as a crucial bridge between technology manufacturers and end users since 1984, CDW (NASDAQ: CDW) is a multi-brand provider of information technology solutions that helps businesses and public sector organizations select, implement, and manage hardware, software, and IT services.
Why Do We Pass on CDW?
- Sales tumbled by 1.1% annually over the last two years, showing market trends are working against its favor during this cycle
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 1.9%
- Earnings per share were flat over the last two years and fell short of the peer group average
At $167.66 per share, CDW trades at 16.7x forward P/E. Check out our free in-depth research report to learn more about why CDW doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out 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
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.
