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.
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 struggle to keep up.
Two Stocks to Sell:
Micron (MU)
Trailing 12-Month Free Cash Flow Margin: 1.9%
Founded in the basement of a Boise, Idaho dental office in 1978, Micron (NYSE: MU) is a leading provider of memory chips used in thousands of devices across mobile, data centers, industrial, consumer, and automotive markets.
Why Are We Wary of MU?
- Gross margin of 21.8% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Subpar operating margin of 4.1% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- Negative free cash flow raises questions about the return timeline for its investments
Micron’s stock price of $111.07 implies a valuation ratio of 12.7x forward P/E. Dive into our free research report to see why there are better opportunities than MU.
Knight-Swift Transportation (KNX)
Trailing 12-Month Free Cash Flow Margin: 5.5%
Covering 1.6 billion loaded miles in 2023 alone, Knight-Swift Transportation (NYSE: KNX) offers less-than-truckload and full truckload delivery services.
Why Do We Avoid KNX?
- 1.2% annual revenue growth over the last two years was slower than its industrials peers
- Free cash flow margin shrank by 9.5 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $44.81 per share, Knight-Swift Transportation trades at 22.6x forward P/E. To fully understand why you should be careful with KNX, check out our full research report (it’s free).
One Stock to Buy:
DexCom (DXCM)
Trailing 12-Month Free Cash Flow Margin: 13.9%
Founded in 1999 and receiving its first FDA approval in 2006, DexCom (NASDAQ: DXCM) develops and sells continuous glucose monitoring systems that allow people with diabetes to track their blood sugar levels without repeated finger pricks.
Why Are We Backing DXCM?
- Core business can prosper without any help from acquisitions as its organic revenue growth averaged 19.2% over the past two years
- Performance over the past five years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 23.2% outpaced its revenue gains
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
DexCom is trading at $85.31 per share, or 40x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth 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 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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free.
