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. Keeping that in mind, here are two cash-producing companies that leverage their financial strength to beat the competition and one that may struggle to keep up.

One Stock to Sell:

Somnigroup (SGI)

Trailing 12-Month Free Cash Flow Margin: 11.5%

Established through the merger of Tempur-Pedic and Sealy in 2012, Somnigroup (NYSE: SGI) is a bedding manufacturer known for its innovative memory foam mattresses and sleep products

Why Are We Wary of SGI?

1. Flat sales over the last two years suggest it must innovate and find new ways to grow
2. Free cash flow margin is forecasted to shrink by 4.5 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $61.34 per share, Somnigroup trades at 10.6x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SGI doesn’t pass our bar.

Two Stocks to Watch:

RBC Bearings (RBC)

Trailing 12-Month Free Cash Flow Margin: 16.1%

With a Guinness World Record for engineering the largest spherical plain bearing, RBC Bearings (NYSE: RBC) is a manufacturer of bearings and related components for the aerospace & defense, industrial, and transportation industries.

Why Is RBC on Our Radar?

1. Market share has increased this cycle as its 17.4% annual revenue growth over the last five years was exceptional
2. Healthy operating margin of 19.8% shows it’s a well-run company with efficient processes, and its rise over the last five years was fueled by some leverage on its fixed costs
3. Earnings growth has massively outpaced its peers over the last two years as its EPS has compounded at 22.1% annually

RBC Bearings is trading at $333.75 per share, or 31.9x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.

Watts Water Technologies (WTS)

Trailing 12-Month Free Cash Flow Margin: 14.5%

Founded in 1874, Watts Water (NYSE: WTS) specializes in manufacturing water products and systems for residential, commercial, and industrial applications globally.

Why Do We Like WTS?

1. Offerings are difficult to replicate at scale and result in a stellar gross margin of 44.7%
2. Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
3. Share repurchases over the last five years enabled its annual earnings per share growth of 16.8% to outpace its revenue gains

Watts Water Technologies’s stock price of $210.52 implies a valuation ratio of 23.4x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.

Stocks That Overcame Trump’s 2018 Tariffs

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.