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 is one cash-producing company that reinvests wisely to drive long-term success and two that may face some trouble.
Two Stocks to Sell:
Winnebago (WGO)
Trailing 12-Month Free Cash Flow Margin: 2.6%
Created to provide high-quality, affordable RVs to the post-war American family, Winnebago (NYSE: WGO) is a manufacturer of recreational vehicles, providing a range of motorhomes, travel trailers, and fifth-wheel products for outdoor and adventure lifestyles.
Why Is WGO Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 21.4% annually over the last two years
- Earnings per share fell by 15.2% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $31.09 per share, Winnebago trades at 7.1x forward price-to-earnings. If you’re considering WGO for your portfolio, see our FREE research report to learn more.
Fortrea (FTRE)
Trailing 12-Month Free Cash Flow Margin: 8.8%
Spun off from Labcorp in 2023 to focus exclusively on clinical research services, Fortrea (NASDAQ: FTRE) is a contract research organization that helps pharmaceutical, biotech, and medical device companies develop and bring their products to market through clinical trials and support services.
Why Do We Pass on FTRE?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 6.7% annually over the last two years
- Earnings per share have dipped by 49.5% annually over the past three years, which is concerning because stock prices follow EPS over the long term
- High net-debt-to-EBITDA ratio of 5× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Fortrea is trading at $5.22 per share, or 4x forward price-to-earnings. Check out our free in-depth research report to learn more about why FTRE doesn’t pass our bar.
One Stock to Buy:
Netflix (NFLX)
Trailing 12-Month Free Cash Flow Margin: 18.5%
Launched by Reed Hastings as a DVD mail rental company until its famous pivot to streaming in 2007, Netflix (NASDAQ: NFLX) is a pioneering streaming content platform.
Why Are We Bullish on NFLX?
- Has the opportunity to boost monetization through new features and premium offerings as its global streaming paid memberships have grown by 13.5% annually over the last two years
- Disciplined cost controls and effective management resulted in a strong two-year EBITDA margin of 27%, and its profits increased over the last few years as it scaled
- Free cash flow margin jumped by 18.6 percentage points over the last few years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Netflix’s stock price of $999.06 implies a valuation ratio of 30.5x forward EV-to-EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like 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 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
