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. Keeping that in mind, here are two cash-producing companies that leverage their financial strength to beat the competition and one best left off your watchlist.
One Stock to Sell:
National Vision (EYE)
Trailing 12-Month Free Cash Flow Margin: 2.1%
Operating under multiple brands, National Vision (NYSE: EYE) sells optical products such as eyeglasses and provides optical services such as eye exams.
Why Are We Out on EYE?
- Store closures demonstrate a defensive approach to eliminating underperforming locations
- Already-low operating margin of 0.4% fell over the last year, and the smaller profit dollars make it harder to react to unexpected market developments
- Underwhelming 2.9% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging
At $11.59 per share, National Vision trades at 22.9x forward price-to-earnings. To fully understand why you should be careful with EYE, check out our full research report (it’s free).
Two Stocks to Buy:
The Trade Desk (TTD)
Trailing 12-Month Free Cash Flow Margin: 25.9%
Founded by former Microsoft engineers Jeff Green and Dave Pickles, The Trade Desk (NASDAQ: TTD) offers cloud-based software that uses data to help advertisers better plan, place, and target their online ads.
Why Is TTD a Top Pick?
- Billings growth has averaged 27.2% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
- User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
- Excellent operating margin of 17.5% highlights the efficiency of its business model, and its operating leverage amplified its profits over the last year
The Trade Desk is trading at $49.49 per share, or 8.9x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
DexCom (DXCM)
Trailing 12-Month Free Cash Flow Margin: 15.6%
Founded in 1999 and receiving its first FDA approval in 2006, DexCom (NASDAQ: DXCM) develops and sells continuous glucose monitoring systems that allow people with diabetes to track their blood sugar levels without repeated finger pricks.
Why Will DXCM Beat the Market?
- Average organic revenue growth of 19.4% over the past two years demonstrates its ability to expand independently without relying on acquisitions
- Performance over the past five years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 28.9% outpaced its revenue gains
- Industry-leading 26.7% return on capital demonstrates management’s skill in finding high-return investments
DexCom’s stock price of $67.56 implies a valuation ratio of 34x forward price-to-earnings. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Stocks We Like Even More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 6 Stocks for this week. 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 Axon (+711% five-year return). Find your next big winner with StockStory today for free.
