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. 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:
Flywire (FLYW)
Trailing 12-Month Free Cash Flow Margin: 16.2%
Originally created to process international tuition payments for universities, Flywire (NASDAQ: FLYW) is a cross border payments processor and software platform focusing on complex, high-value transactions like education, healthcare and B2B payments.
Why Are We Hesitant About FLYW?
- High servicing costs result in a relatively inferior gross margin of 62.9% that must be offset through increased usage
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Track record of operating margin losses stem from its decision to pursue growth instead of profits
Flywire is trading at $11.79 per share, or 2.3x forward price-to-sales. If you’re considering FLYW for your portfolio, see our FREE research report to learn more.
Cars.com (CARS)
Trailing 12-Month Free Cash Flow Margin: 15.8%
Originally started as a joint venture between several media companies including The Washington Post and The New York Times, Cars.com (NYSE: CARS) is a digital marketplace that connects new and used car buyers and sellers.
Why Does CARS Give Us Pause?
- Likely needs to improve its platform or increase its marketing budget for penetration to accelerate as its dealer customers were flat over the last two years
- Estimated sales growth of 1.9% for the next 12 months implies demand will slow from its three-year trend
- Earnings per share have dipped by 1.8% annually over the past three years, which is concerning because stock prices follow EPS over the long term
Cars.com’s stock price of $12.43 implies a valuation ratio of 3.6x forward EV/EBITDA. To fully understand why you should be careful with CARS, check out our full research report (it’s free).
One Stock to Watch:
Vertex Pharmaceuticals (VRTX)
Trailing 12-Month Free Cash Flow Margin: 30.6%
Founded in 1989 with a mission to create medicines that treat the underlying causes of disease rather than just symptoms, Vertex Pharmaceuticals (NASDAQ: VRTX) develops and markets transformative medicines for serious diseases, with a focus on cystic fibrosis, sickle cell disease, and pain management.
Why Could VRTX Be a Winner?
- 16.1% annual revenue growth over the last five years surpassed the sector average as its offerings resonated with customers
- Earnings growth has massively outpaced its peers over the last five years as its EPS has compounded at 15.9% annually
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
At $367.50 per share, Vertex Pharmaceuticals trades at 18.7x forward P/E. Is now a good time to buy? See for yourself in our in-depth 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 6 Stocks for this week. 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-small-cap company Comfort Systems (+782% 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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