A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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:
Dover (DOV)
Trailing 12-Month Free Cash Flow Margin: 11.9%
A company that manufactured critical equipment for the United States military during World War II, Dover (NYSE: DOV) manufactures engineered components and specialized equipment for numerous industries.
Why Should You Sell DOV?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 2.2% annually
- Free cash flow margin dropped by 3.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $174.93 per share, Dover trades at 18.4x forward P/E. To fully understand why you should be careful with DOV, check out our full research report (it’s free).
Illinois Tool Works (ITW)
Trailing 12-Month Free Cash Flow Margin: 18.1%
Founded by Byron Smith, an investor who held over 100 patents, Illinois Tool Works (NYSE: ITW) manufactures engineered components and specialized equipment for numerous industries.
Why Is ITW Not Exciting?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 1.3%
- Free cash flow margin shrank by 1.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Illinois Tool Works’s stock price of $241.83 implies a valuation ratio of 23x forward P/E. Dive into our free research report to see why there are better opportunities than ITW.
One Stock to Watch:
Medpace (MEDP)
Trailing 12-Month Free Cash Flow Margin: 25.1%
Founded in 1992 as a scientifically-driven alternative to traditional contract research organizations, Medpace (NASDAQ: MEDP) provides outsourced clinical trial management and research services to help pharmaceutical, biotechnology, and medical device companies develop new treatments.
Why Could MEDP Be a Winner?
- Average organic revenue growth of 17.8% over the past two years demonstrates its ability to expand independently without relying on acquisitions
- Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Returns on capital are climbing as management makes more lucrative bets
Medpace is trading at $308.90 per share, or 24.7x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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.
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