A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here is one cash-producing company that reinvests wisely to drive long-term success and two best left off your watchlist.
Two Stocks to Sell:
Steven Madden (SHOO)
Trailing 12-Month Free Cash Flow Margin: 5.7%
As seen in the infamous Wolf of Wall Street movie, Steven Madden (NASDAQ: SHOO) is a fashion brand famous for its trendy and innovative footwear, appealing to a young and style-conscious audience.
Why Are We Cautious About SHOO?
- 9.4% annual revenue growth over the last two years was slower than its consumer discretionary peers
- Poor free cash flow margin of 7.9% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Diminishing returns on capital suggest its earlier profit pools are drying up
Steven Madden is trading at $33.57 per share, or 20.7x forward P/E. To fully understand why you should be careful with SHOO, check out our full research report (it’s free).
Herc (HRI)
Trailing 12-Month Free Cash Flow Margin: 7.1%
Formerly a subsidiary of Hertz Corporation and with a logo that still bears some similarities to its former parent, Herc Holdings (NYSE: HRI) provides equipment rental and related services to a wide range of industries.
Why Does HRI Fall Short?
- Earnings per share fell by 3.4% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
- Free cash flow margin shrank by 13.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate
At $124.51 per share, Herc trades at 10x forward P/E. Check out our free in-depth research report to learn more about why HRI doesn’t pass our bar.
One Stock to Watch:
CAVA (CAVA)
Trailing 12-Month Free Cash Flow Margin: 4.4%
Starting from a single Washington, D.C. location, CAVA (NYSE: CAVA) operates a fast-casual restaurant chain offering customizable Mediterranean-inspired dishes.
Why Is CAVA on Our Radar?
- Average same-store sales growth of 11.8% over the past two years indicates its restaurants are resonating with diners
- Earnings per share grew by 200% annually over the last one years, massively outpacing its peers
- Free cash flow margin jumped by 3.1 percentage points over the last year, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
CAVA’s stock price of $63.39 implies a valuation ratio of 101.2x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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 5 Strong Momentum 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).
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