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.

Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here are three cash-producing companies to steer clear of and a few better alternatives.

Proto Labs (PRLB)

Trailing 12-Month Free Cash Flow Margin: 13.4%

Pioneering the concept of online quoting and manufacturing for custom prototypes and low-volume production parts, Proto Labs (NYSE: PRLB) offers injection molding, 3D printing, and sheet metal fabrication for manufacturers in various industries.

Why Do We Avoid PRLB?

1. Sales stagnated over the last two years and signal the need for new growth strategies
2. Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 7.3 percentage points
3. Earnings per share have contracted by 10% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance

At $41.17 per share, Proto Labs trades at 27.9x forward P/E. Dive into our free research report to see why there are better opportunities than PRLB.

Tesla (TSLA)

Trailing 12-Month Free Cash Flow Margin: 7.1%

Originally founded by Martin Eberhard and Marc Tarpenning in 2003, Tesla (NASDAQ: TSLA) is an electric vehicle company accelerating the world’s transition to sustainable energy.

Why Is TSLA Not Exciting?

1. Tesla's scale advantage in EV production leads to gross margins that exceed incumbents such as General Motors and Ford. However, a softer macroeconomic backdrop and tariff pressures have weighed on automobile sales, which are highly cyclical.
2. The company's execution ability is a question mark given its long history of delays, such as the Cybertruck and Robotaxi launches. Its sizeable investments in projects with uncertain return timelines, like Optimus, also raise skepticism from investors.
3. On the bright side, Tesla's Megapack product solves a critical problem for utilities needing renewable energy storage solutions. This innovation has made the energy segment the most profitable and fastest-growing business line for the company.

Tesla is trading at $312.70 per share, or 120.7x forward price-to-earnings. If you’re considering TSLA for your portfolio, see our FREE research report to learn more.

Flex (FLEX)

Trailing 12-Month Free Cash Flow Margin: 4.1%

Originally known as Flextronics until its 2016 rebranding, Flex (NASDAQ: FLEX) is a global manufacturing partner that designs, engineers, and builds products for companies across industries from medical devices to solar trackers.

Why Do We Steer Clear of FLEX?

1. Annual sales declines of 4.8% for the past two years show its products and services struggled to connect with the market during this cycle
2. Anticipated sales growth of 1.1% for the next year implies demand will be shaky
3. Low free cash flow margin of 1.9% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

Flex’s stock price of $51.70 implies a valuation ratio of 18.3x forward P/E. Read our free research report to see why you should think twice about including FLEX in your portfolio.

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 5 Growth Stocks for this month. 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).

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