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 reinvest wisely to drive long-term success and one that may struggle to keep up.
One Stock to Sell:
Elanco (ELAN)
Trailing 12-Month Free Cash Flow Margin: 6.4%
Originally established as a division of pharmaceutical giant Eli Lilly before becoming independent in 2018, Elanco Animal Health (NYSE: ELAN) develops and sells medications, vaccines, and other health products for pets and farm animals across more than 90 countries.
Why Does ELAN Worry Us?
- Sales trends were unexciting over the last five years as its 4.9% annual growth was below the typical healthcare company
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 2.9 percentage points
- Push for growth has led to negative returns on capital, signaling value destruction
Elanco’s stock price of $24.08 implies a valuation ratio of 21.4x forward P/E. Dive into our free research report to see why there are better opportunities than ELAN.
Two Stocks to Buy:
Robinhood (HOOD)
Trailing 12-Month Free Cash Flow Margin: 64.4%
With a mission to democratize finance, Robinhood (NASDAQ: HOOD) is an online consumer finance platform known for its commission-free stock and crypto trading.
Why Are We Bullish on HOOD?
- 143% annual increases in its average revenue per user over the last two years show its platform is resonating with power users
- Performance over the past three years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 95.7% outpaced its revenue gains
- HOOD is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its rising cash conversion increases its margin of safety
At $93.05 per share, Robinhood trades at 27.2x forward EV/EBITDA. Is now the time to initiate a position? Find out in our full research report, it’s free.
Planet Labs (PL)
Trailing 12-Month Free Cash Flow Margin: 13.9%
Pioneering the concept of "agile aerospace" with hundreds of small but powerful satellites, Planet Labs (NYSE: PL) operates the world's largest fleet of Earth observation satellites, capturing daily images of our planet to provide insights on deforestation, agriculture, and climate change.
Why Are We Backing PL?
- Sales pipeline is in good shape as its backlog averaged 143% growth over the past two years
- Additional sales over the last two years increased its profitability as the 48.9% annual growth in its earnings per share outpaced its revenue
- Free cash flow flipped to positive over the last five years, showing the company has crossed a key inflection point
Planet Labs is trading at $35.78 per share, or 498.5x forward EV-to-EBITDA. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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.
