A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here is one cash-producing company that reinvests wisely to drive long-term success and two that may face some trouble.
Two Stocks to Sell:
GMS (GMS)
Trailing 12-Month Free Cash Flow Margin: 6.1%
Founded in 1971, GMS (NYSE: GMS) distributes specialty building materials including wallboard, ceilings, and insulation products, to the construction industry.
Why Does GMS Worry Us?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
At $109.41 per share, GMS trades at 17.8x forward P/E. If you’re considering GMS for your portfolio, see our FREE research report to learn more.
Cummins (CMI)
Trailing 12-Month Free Cash Flow Margin: 4.9%
With more than half of the heavy-duty truck market using its engines at one point, Cummins (NYSE: CMI) offers engines and power systems.
Why Does CMI Give Us Pause?
- Annual sales growth of 2.3% over the last two years lagged behind its industrials peers as its large revenue base made it difficult to generate incremental demand
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.9 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Cummins’s stock price of $388.49 implies a valuation ratio of 18.8x forward P/E. Check out our free in-depth research report to learn more about why CMI doesn’t pass our bar.
One Stock to Watch:
Cadence (CDNS)
Trailing 12-Month Free Cash Flow Margin: 31.1%
With the name chosen to reflect the idea of a repeating pattern or rhythm in electronic design, Cadence Design Systems (NASDAQ: CDNS) offers a software-as-a-service platform for semiconductor engineering and design.
Why Does CDNS Catch Our Eye?
- Winning new contracts that can potentially increase in value as its billings growth has averaged 25.5% over the last year
- User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
Cadence is trading at $352.37 per share, or 17.5x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
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 9 Market-Beating Stocks. 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 Tecnoglass (+1,754% 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
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