3 Cash-Producing Stocks Skating on Thin Ice

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.

Luckily for you, we built StockStory to help you separate the good from the bad. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.

Redfin (RDFN)

Trailing 12-Month Free Cash Flow Margin: 3.9%

Founded by a former medical school student, electrical engineer, and Amazon data engineer, Redfin (NASDAQ:RDFN) is a real estate company offering brokerage services through an online platform.

Why Should You Dump RDFN?

1. Performance surrounding its partner transactions has lagged its peers
2. Earnings per share fell by 10.6% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. Negative earnings profile makes it challenging to secure favorable financing terms from lenders

At $9.79 per share, Redfin trades at 75.9x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why RDFN doesn’t pass our bar.

PepsiCo (PEP)

Trailing 12-Month Free Cash Flow Margin: 8.5%

With a history that goes back more than a century, PepsiCo (NASDAQ:PEP) is a household name in food and beverages today and best known for its flagship soda.

Why Are We Wary of PEP?

1. Scale is a double-edged sword because it limits the company's growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 4.2% for the last three years
2. Declining unit sales over the past two years suggest it might have to lower prices to stimulate growth
3. Demand is forecasted to shrink as its estimated sales for the next 12 months are flat

PepsiCo’s stock price of $129.50 implies a valuation ratio of 15.5x forward P/E. If you’re considering PEP for your portfolio, see our FREE research report to learn more.

Taboola (TBLA)

Trailing 12-Month Free Cash Flow Margin: 8.8%

Often appearing as those "You May Also Like" or "Recommended For You" boxes at the bottom of news articles, Taboola (NASDAQ:TBLA) operates a digital platform that recommends personalized content to users across publisher websites, helping both publishers monetize their sites and advertisers reach target audiences.

Why Does TBLA Give Us Pause?

1. Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
2. Free cash flow margin dropped significantly over the last five years, implying the company became more capital intensive as competition picked up
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Taboola is trading at $3.50 per share, or 6.6x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why TBLA 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 6 Stocks for this week. 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 Kadant (+351% five-year return). Find your next big winner with StockStory today for free.