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 excels at turning cash into shareholder value and two that may struggle to keep up.
Two Stocks to Sell:
Dayforce (DAY)
Trailing 12-Month Free Cash Flow Margin: 12.1%
Rebranded from Ceridian in January 2024 to highlight its flagship product, Dayforce (NYSE: DAY) provides cloud-based software that helps organizations manage their entire employee lifecycle, including HR, payroll, workforce management, benefits, and talent development.
Why Does DAY Worry Us?
- 17.8% annual revenue growth over the last three years was slower than its software peers
- Gross margin of 50.9% reflects its high servicing costs
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 1.3 percentage points
Dayforce’s stock price of $67.24 implies a valuation ratio of 5.3x forward price-to-sales. Check out our free in-depth research report to learn more about why DAY doesn’t pass our bar.
J. M. Smucker (SJM)
Trailing 12-Month Free Cash Flow Margin: 9.4%
Best known for its fruit jams and spreads, J.M Smucker (NYSE: SJM) is a packaged foods company whose products span from peanut butter and coffee to pet food.
Why Are We Out on SJM?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 23.7 percentage points
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its decreasing returns suggest its historical profit centers are aging
At $113.36 per share, J. M. Smucker trades at 11x forward P/E. To fully understand why you should be careful with SJM, check out our full research report (it’s free).
One Stock to Watch:
Qualcomm (QCOM)
Trailing 12-Month Free Cash Flow Margin: 27%
Having been at the forefront of developing the standards for cellular connectivity for over four decades, Qualcomm (NASDAQ: QCOM) is a leading innovator and a fabless manufacturer of wireless technology chips used in smartphones, autos and internet of things appliances.
Why Are We Fans of QCOM?
- Impressive 16.6% annual revenue growth over the last five years indicates it’s winning market share this cycle
- QCOM is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
- Industry-leading 51.2% return on capital demonstrates management’s skill in finding high-return investments
Qualcomm is trading at $154.96 per share, or 13.3x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
Donald Trump’s April 2025 "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 Kadant (+351% 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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