Generating cash is essential for any business, but not all cash-rich companies are great investments. Some produce plenty of cash but fail to allocate it effectively, leading to missed opportunities.

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 excels at turning cash into shareholder value and two that may struggle to keep up.

Two Stocks to Sell:

Dollar General (DG)

Trailing 12-Month Free Cash Flow Margin: 4.4%

Appealing to the budget-conscious consumer, Dollar General (NYSE: DG) is a discount retailer that sells a wide range of household essentials, groceries, apparel/beauty products, and seasonal merchandise.

Why Does DG Fall Short?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Gross margin of 29.9% is below its competitors, leaving less money for marketing and promotions
3. 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly

At $100.27 per share, Dollar General trades at 15.4x forward P/E. To fully understand why you should be careful with DG, check out our full research report (it’s free for active Edge members).

Packaging Corporation of America (PKG)

Trailing 12-Month Free Cash Flow Margin: 7.2%

Founded in 1959, Packaging Corporation of America (NYSE: PKG) produces containerboard and corrugated packaging products as well as displays and package protection.

Why Does PKG Worry Us?

1. Sales trends were unexciting over the last two years as its 3.7% annual growth was below the typical industrials company
2. High input costs result in an inferior gross margin of 22.7% that must be offset through higher volumes
3. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 1.1% annually

Packaging Corporation of America is trading at $209.01 per share, or 19.4x forward P/E. Read our free research report to see why you should think twice about including PKG in your portfolio.

One Stock to Watch:

Dynatrace (DT)

Trailing 12-Month Free Cash Flow Margin: 26.2%

With its platform processing over 30 trillion pieces of IT performance data daily, Dynatrace (NYSE: DT) provides an AI-powered platform that helps organizations monitor, secure, and optimize their applications and IT infrastructure across cloud environments.

Why Are We Positive On DT?

1. Winning new contracts that can potentially increase in value as its billings growth has averaged 18.9% over the last year
2. Software is difficult to replicate at scale and leads to a top-tier gross margin of 81.9%
3. Strong free cash flow margin of 26.2% enables it to reinvest or return capital consistently

Dynatrace’s stock price of $47.66 implies a valuation ratio of 7.3x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.

Stocks We Like Even More

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking out our Top 9 Market-Beating Stocks. 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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