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. That said, here are two cash-producing companies that reinvest wisely to drive long-term success and one best left off your watchlist.
One Stock to Sell:
Allegion (ALLE)
Trailing 12-Month Free Cash Flow Margin: 17.6%
Allegion plc (NYSE: ALLE) is a provider of security products and solutions that keep people and assets safe and secure in various environments.
Why Does ALLE Give Us Pause?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 2.7 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
Allegion is trading at $163.67 per share, or 20.3x forward P/E. Check out our free in-depth research report to learn more about why ALLE doesn’t pass our bar.
Two Stocks to Watch:
Marvell Technology (MRVL)
Trailing 12-Month Free Cash Flow Margin: 21.2%
Moving away from a low margin storage device management chips in one of the biggest semiconductor business model pivots of the past decade, Marvell Technology (NASDAQ: MRVL) is a fabless designer of special purpose data processing and networking chips used by data centers, communications carriers, enterprises, and autos.
Why Are We Positive On MRVL?
- Market share has increased this cycle as its 18.9% annual revenue growth over the last five years was exceptional
- Exciting sales outlook for the upcoming 12 months calls for 31.9% growth, an acceleration from its two-year trend
- Incremental sales over the last five years have been more profitable as its earnings per share increased by 23.5% annually, topping its revenue gains
Marvell Technology’s stock price of $74.30 implies a valuation ratio of 24.9x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Yum! Brands (YUM)
Trailing 12-Month Free Cash Flow Margin: 18.8%
Spun off as an independent company from PepsiCo, Yum! Brands (NYSE: YUM) is a multinational corporation that owns KFC, Pizza Hut, Taco Bell, and The Habit Burger Grill.
Why Does YUM Stand Out?
- Bold push to open new restaurants demonstrates an ambitious strategy to establish itself in underpenetrated territories
- Disciplined cost controls and effective management resulted in a strong two-year operating margin of 32.1%
- YUM is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
At $145 per share, Yum! Brands trades at 23.7x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More
Donald Trump’s April 2024 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check 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).
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 Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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