A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.

Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. That said, 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:

Novanta (NOVT)

Trailing 12-Month Free Cash Flow Margin: 12.3%

Originally a pioneer in the laser scanning industry during the late 1960s, Novanta (NASDAQ: NOVT) offers medicine and manufacturing technology to the medical, life sciences, and manufacturing industries.

Why Does NOVT Give Us Pause?

1. 3.7% annual revenue growth over the last two years was slower than its industrials peers
2. Flat earnings per share over the last two years lagged its peers
3. Free cash flow margin dropped by 8 percentage points over the last five years, implying the company became more capital intensive as competition picked up

Novanta’s stock price of $116 implies a valuation ratio of 34x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including NOVT in your portfolio.

Two Stocks to Watch:

Aris Water (ARIS)

Trailing 12-Month Free Cash Flow Margin: 21.7%

Primarily serving the oil and gas industry, Aris Water (NYSE: ARIS) is a provider of water handling and recycling solutions.

Why Are We Backing ARIS?

1. Impressive 23.8% annual revenue growth over the last five years indicates it’s winning market share this cycle
2. Incremental sales over the last two years have been highly profitable as its earnings per share increased by 53.7% annually, topping its revenue gains
3. Free cash flow margin jumped by 38.4 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends

At $23.60 per share, Aris Water trades at 1.6x 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.

Coherent (COHR)

Trailing 12-Month Free Cash Flow Margin: 3.3%

Created through the 2022 rebranding of II-VI Incorporated, a company with roots dating back to 1971, Coherent (NYSE: COHR) develops and manufactures advanced materials, lasers, and optical components for applications ranging from telecommunications to industrial manufacturing.

Why Does COHR Stand Out?

1. Market share has increased this cycle as its 19.5% annual revenue growth over the last five years was exceptional
2. Economies of scale give it more fixed cost leverage than its smaller competitors
3. Sales outlook for the upcoming 12 months calls for 8.7% growth, an acceleration from its two-year trend

Coherent is trading at $115.02 per share, or 25.1x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.

High-Quality Stocks for All Market Conditions

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