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 leverages its financial strength to beat its competitors and two that may face some trouble.

Two Stocks to Sell:

Churchill Downs (CHDN)

Trailing 12-Month Free Cash Flow Margin: 12.9%

Famous for hosting the Kentucky Derby, Churchill Downs (NASDAQ: CHDN) operates a horse racing, online wagering, and gaming entertainment business in the United States.

Why Does CHDN Fall Short?

1. Lackluster 13.6% annual revenue growth over the last two years indicates the company is losing ground to competitors
2. Estimated sales growth of 5.4% for the next 12 months implies demand will slow from its two-year trend
3. ROIC of 8.9% reflects management’s challenges in identifying attractive investment opportunities

At $105.80 per share, Churchill Downs trades at 15.5x forward P/E. Check out our free in-depth research report to learn more about why CHDN doesn’t pass our bar.

Root (ROOT)

Trailing 12-Month Free Cash Flow Margin: 13.5%

Pioneering a data-driven approach that rewards good driving habits, Root (NASDAQ: ROOT) is a technology-driven auto insurance company that uses mobile apps to acquire customers and data science to price policies based on individual driving behavior.

Why Are We Cautious About ROOT?

1. Annual book value per share declines of 158% for the past five years show its capital management struggled during this cycle
2. Negative return on equity shows that some of its growth strategies have backfired

Root’s stock price of $91.98 implies a valuation ratio of 4.4x forward P/B. To fully understand why you should be careful with ROOT, check out our full research report (it’s free).

One Stock to Buy:

ESCO (ESE)

Trailing 12-Month Free Cash Flow Margin: 15.2%

A developer of the communication systems used in the Batmobile of “The Dark Knight,” ESCO (NYSE: ESE) is a provider of engineered components for the aerospace, defense, and utility sectors.

Why Will ESE Beat the Market?

1. Projected revenue growth of 23.1% for the next 12 months is above its two-year trend, pointing to accelerating demand
2. Offerings are difficult to replicate at scale and lead to a stellar gross margin of 39.1%
3. Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 22.4% outpaced its revenue gains

ESCO is trading at $200.91 per share, or 30.5x 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

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 5 Growth Stocks for this month. 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 Tecnoglass (+1,754% 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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