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.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here are two cash-producing companies that excel at turning cash into shareholder value and one best left off your watchlist.
One Stock to Sell:
Lamb Weston (LW)
Trailing 12-Month Free Cash Flow Margin: 3.6%
Best known for its Grown in Idaho brand, Lamb Weston (NYSE: LW) produces and distributes potato products such as frozen french fries and mashed potatoes.
Why Does LW Worry Us?
- Projected sales are flat for the next 12 months, implying demand will slow from its three-year trend
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 6.2 percentage points
- Poor free cash flow margin of 0.8% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
At $56.55 per share, Lamb Weston trades at 16.4x forward P/E. To fully understand why you should be careful with LW, check out our full research report (it’s free).
Two Stocks to Watch:
Abercrombie and Fitch (ANF)
Trailing 12-Month Free Cash Flow Margin: 6.8%
Founded as an outdoor and sporting brand, Abercrombie & Fitch (NYSE: ANF) evolved to become a specialty retailer that sells its own brand of fashionable clothing to young adults.
Why Are We Positive On ANF?
- Comparable store sales rose by 13.5% on average over the past two years, demonstrating its ability to drive increased spending at existing locations
- Unique assortment of products and pricing power lead to a best-in-class gross margin of 63.6%
- Earnings per share have massively outperformed its peers over the last six years, increasing by 48.1% annually
Abercrombie and Fitch’s stock price of $93.10 implies a valuation ratio of 9.1x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Tetra Tech (TTEK)
Trailing 12-Month Free Cash Flow Margin: 9.6%
With a 50-year legacy of "Leading with Science" and operations on all seven continents, Tetra Tech (NASDAQ: TTEK) provides high-end consulting and engineering services focused on water management, environmental solutions, and sustainable infrastructure for government and commercial clients worldwide.
Why Do We Like TTEK?
- Impressive 15.8% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Average backlog growth of 10.2% over the past two years shows it has a steady sales pipeline that will drive future orders
- Robust free cash flow margin of 9.8% gives it many options for capital deployment
Tetra Tech is trading at $35.96 per share, or 24.5x 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
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