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 is one cash-producing company that leverages its financial strength to beat its competitors and two best left off your watchlist.
Two Stocks to Sell:
Elastic (ESTC)
Trailing 12-Month Free Cash Flow Margin: 16.6%
Started by Shay Banon as a search engine for his wife's growing list of recipes at Le Cordon Bleu cooking school in Paris, Elastic (NYSE: ESTC) helps companies integrate search into their products and monitor their cloud infrastructure.
Why Do We Think Twice About ESTC?
- Historical operating losses point to an inefficient cost structure
- Free cash flow margin is forecasted to shrink by 2.3 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
Elastic’s stock price of $92 implies a valuation ratio of 6x forward price-to-sales. To fully understand why you should be careful with ESTC, check out our full research report (it’s free).
Marriott (MAR)
Trailing 12-Month Free Cash Flow Margin: 7.3%
Founded by J. Willard Marriott in 1927, Marriott International (NASDAQ: MAR) is a global hospitality company with a portfolio of over 7,000 properties and 30 brands, spanning 130+ countries and territories.
Why Is MAR Not Exciting?
- Weak revenue per room over the past two years indicates challenges in maintaining pricing power and occupancy rates
- Estimated sales growth of 4% for the next 12 months implies demand will slow from its two-year trend
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 9% for the last two years
At $271.13 per share, Marriott trades at 26.5x forward P/E. Check out our free in-depth research report to learn more about why MAR doesn’t pass our bar.
One Stock to Buy:
Alphabet (GOOGL)
Trailing 12-Month Free Cash Flow Margin: 20.8%
Started by Stanford students Larry Page and Sergey Brin in a Menlo Park garage, Alphabet (NASDAQ: GOOGL) is the parent company of the eponymous Google Search engine, Google Cloud Platform, and YouTube.
Why Will GOOGL Beat the Market?
- Alphabet’s dominant Google Search sits on the pantheon of the best businesses ever. This is reflected in its robust long-term revenue growth and elite operating margin.
- The company’s profit margins have become even higher over time, speaking to its scale advantages and operating efficiency not only in its core Search business but also in Google Cloud Platform and YouTube.
- Revenue growth and increasing operating margins are the key ingredients for strong EPS growth. Google has these, and when also factoring in its share repurchases, you can see why EPS has exploded over the long term.
Alphabet is trading at $164.94 per share, or 18.3x forward price-to-earnings. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even 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 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 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-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free.
