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.
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 steer clear of and a few better alternatives.
Marqeta (MQ)
Trailing 12-Month Free Cash Flow Margin: 17.9%
Powering the cards behind innovative fintech services like Block's Cash App, Marqeta (NASDAQ:MQ) provides a cloud-based platform that allows businesses to create customized payment card programs and process card transactions.
Why Does MQ Fall Short?
- Sales tumbled by 12.1% annually over the last two years, showing industry trends like AI are working against its favor
- High servicing costs result in a relatively inferior gross margin of 70.6% that must be offset through increased usage
- Inability to adjust its cost structure while its revenue declined over the last year led to a 4 percentage point drop in the company’s operating margin
At $4.49 per share, Marqeta trades at 2.8x forward price-to-sales. To fully understand why you should be careful with MQ, check out our full research report (it’s free).
Zimmer Biomet (ZBH)
Trailing 12-Month Free Cash Flow Margin: 15.1%
With a history dating back to 1927 and a presence in over 100 countries worldwide, Zimmer Biomet (NYSE:ZBH) designs and manufactures orthopedic products including knee and hip replacements, surgical tools, and robotic technologies for joint reconstruction and spine surgeries.
Why Do We Think Twice About ZBH?
- Muted 3% annual revenue growth over the last five years shows its demand lagged behind its healthcare peers
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 1 percentage points
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Zimmer Biomet’s stock price of $87.79 implies a valuation ratio of 10.6x forward P/E. Read our free research report to see why you should think twice about including ZBH in your portfolio.
Illumina (ILMN)
Trailing 12-Month Free Cash Flow Margin: 23.3%
Pioneering the ability to read the human genome at unprecedented speed and affordability, Illumina (NASDAQ:ILMN) develops and sells advanced DNA sequencing and microarray technologies that allow researchers and clinicians to analyze genetic variations and functions.
Why Are We Cautious About ILMN?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Earnings per share fell by 2.2% annually over the last five years while its revenue grew, partly because it diluted shareholders
- Low returns on capital reflect management’s struggle to allocate funds effectively
Illumina is trading at $141.68 per share, or 29.5x forward P/E. Dive into our free research report to see why there are better opportunities than ILMN.
Stocks We Like More
Check out the high-quality names we’ve flagged in 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 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 (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.