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 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:
Driven Brands (DRVN)
Trailing 12-Month Free Cash Flow Margin: 1.7%
With approximately 5,000 locations across 49 U.S. states and 13 other countries, Driven Brands (NASDAQ: DRVN) operates a network of automotive service centers offering maintenance, car washes, paint, collision repair, and glass services across North America.
Why Does DRVN Worry Us?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $17.39 per share, Driven Brands trades at 12.3x forward P/E. To fully understand why you should be careful with DRVN, check out our full research report (it’s free).
Two Stocks to Buy:
AppLovin (APP)
Trailing 12-Month Free Cash Flow Margin: 53.7%
Sitting at the crossroads of the mobile advertising ecosystem with over 200 free-to-play games in its portfolio, AppLovin (NASDAQ: APP) provides software solutions that help mobile app developers market, monetize, and grow their apps through AI-powered advertising and analytics tools.
Why Will APP Outperform?
- Well-designed software integrates seamlessly with other workflows, enabling swift payback periods on marketing expenses and customer growth at scale
- Healthy operating margin of 52% shows it’s a well-run company with efficient processes, and its rise over the last year was fueled by some leverage on its fixed costs
- Robust free cash flow margin of 53.7% gives it many options for capital deployment
AppLovin is trading at $609.99 per share, or 33x forward price-to-sales. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
AutoZone (AZO)
Trailing 12-Month Free Cash Flow Margin: 10.6%
Aiming to be a one-stop shop for the DIY customer, AutoZone (NYSE: AZO) is an auto parts and accessories retailer that sells everything from car batteries to windshield wiper fluid to brake pads.
Why Is AZO a Top Pick?
- Store expansion strategy is justified by its healthy same-store sales
- Differentiated product assortment is reflected in its best-in-class gross margin of 51.8%
- AZO is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
AutoZone’s stock price of $4,237 implies a valuation ratio of 25.6x forward P/E. Is now the time to initiate a position? Find out in our full 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 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-small-cap company Exlservice (+354% 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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