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.
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 best left off your watchlist.
Two Stocks to Sell:
Figs (FIGS)
Trailing 12-Month Free Cash Flow Margin: 3.8%
Rising to fame via TikTok and founded in 2013 by Heather Hasson and Trina Spear, Figs (NYSE: FIGS) is a healthcare apparel company known for its stylish approach to medical attire and uniforms.
Why Is FIGS Risky?
- Performance surrounding its active customers has lagged its peers
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 6.4% for the last two years
- Returns on capital are growing as management invests in more worthwhile ventures
At $11.89 per share, Figs trades at 116.3x forward P/E. Read our free research report to see why you should think twice about including FIGS in your portfolio.
Archer-Daniels-Midland (ADM)
Trailing 12-Month Free Cash Flow Margin: 5.7%
Transforming crops from the world's most productive agricultural regions into everyday essentials, Archer-Daniels-Midland (NYSE: ADM) processes and transports agricultural commodities like grains and oilseeds while manufacturing ingredients for food, beverages, feed, and industrial applications.
Why Does ADM Worry Us?
- Products aren't resonating with the market as its revenue declined by 5.5% annually over the last three years
- Easily substituted products (and therefore stiff competition) result in an inferior gross margin of 6.2% that must be offset through higher volumes
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
Archer-Daniels-Midland is trading at $58.50 per share, or 15.6x forward P/E. If you’re considering ADM for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Powell (POWL)
Trailing 12-Month Free Cash Flow Margin: 14%
Originally a metal-working shop supporting local petrochemical facilities, Powell (NYSE: POWL) has grown from a small Houston manufacturer to a global provider of electrical systems.
Why Is POWL a Good Business?
- Annual revenue growth of 25.7% over the last two years was superb and indicates its market share increased during this cycle
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 86.5% over the last two years outstripped its revenue performance
- Free cash flow margin grew by 21.1 percentage points over the last five years, giving the company more chips to play with
Powell’s stock price of $357.50 implies a valuation ratio of 23.6x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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