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.

IPG Photonics (IPGP)

Trailing 12-Month Free Cash Flow Margin: 3.8%

Both a designer and manufacturer of its products, IPG Photonics (NASDAQ: IPGP) is a provider of high-performance fiber lasers used for cutting, welding, and processing raw materials.

Why Should You Sell IPGP?

1. Annual sales declines of 3.8% for the past five years show its products and services struggled to connect with the market during this cycle
2. Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
3. 15.1 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

At $92.90 per share, IPG Photonics trades at 66.3x forward P/E. If you’re considering IPGP for your portfolio, see our FREE research report to learn more.

Home Depot (HD)

Trailing 12-Month Free Cash Flow Margin: 8.4%

Founded and headquartered in Atlanta, Georgia, Home Depot (NYSE: HD) is a home improvement retailer that sells everything from tools to building materials to appliances.

Why Does HD Worry Us?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 33.4%
3. Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 3.3% annually

Home Depot’s stock price of $375.12 implies a valuation ratio of 25.6x forward P/E. Check out our free in-depth research report to learn more about why HD doesn’t pass our bar.

Hexcel (HXL)

Trailing 12-Month Free Cash Flow Margin: 8.3%

Founded shortly after World War II by a group of engineers from UC Berkley, Hexcel (NYSE: HXL) manufactures lightweight composite materials primarily for the aerospace and defense sectors.

Why Are We Cautious About HXL?

1. Annual revenue growth of 2.9% over the last two years was below our standards for the industrials sector
2. Earnings per share have contracted by 1.4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. ROIC of 6.4% reflects management’s challenges in identifying attractive investment opportunities

Hexcel is trading at $82.01 per share, or 35.4x forward P/E. To fully understand why you should be careful with HXL, check out our full research report (it’s free).

Stocks We Like More

Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.

The names generating the next wave of massive growth are right here 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-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.