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 excels at turning cash into shareholder value and two that may face some trouble.
Two Stocks to Sell:
Wayfair (W)
Trailing 12-Month Free Cash Flow Margin: 2.3%
Founded in 2002 by Niraj Shah, Wayfair (NYSE: W) is a leading online retailer of mass-market home goods in the US, UK, Canada, and Germany.
Why Does W Worry Us?
- Intense competition is diverting traffic from its platform as its active customers fell by 1.8% annually
- Estimated sales growth of 5.2% for the next 12 months is soft and implies weaker demand
- High servicing costs result in an inferior gross margin of 30.2% that must be offset through higher volumes
At $100.28 per share, Wayfair trades at 19.8x forward EV/EBITDA. To fully understand why you should be careful with W, check out our full research report (it’s free for active Edge members).
Dell (DELL)
Trailing 12-Month Free Cash Flow Margin: 4.3%
Founded by Michael Dell in his University of Texas dorm room in 1984 with just $1,000, Dell Technologies (NYSE: DELL) provides hardware, software, and services that help organizations build their IT infrastructure, manage cloud environments, and enable digital transformation.
Why Are We Wary of DELL?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 3.7% over the last five years was below our standards for the business services sector
- Underwhelming ARR growth of 3.6% suggests the company faced challenges in acquiring and retaining long-term customers
- 6.5 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Dell is trading at $127.33 per share, or 11.2x forward P/E. Dive into our free research report to see why there are better opportunities than DELL.
One Stock to Watch:
Carlisle (CSL)
Trailing 12-Month Free Cash Flow Margin: 19.2%
Originally founded as Carlisle Tire and Rubber Company, Carlisle Companies (NYSE: CSL) is a multi-industry product manufacturer focusing on construction materials and weatherproofing technologies.
Why Are We Fans of CSL?
- Healthy operating margin of 19.5% shows it’s a well-run company with efficient processes, and its profits increased over the last five years as it scaled
- Share repurchases over the last five years enabled its annual earnings per share growth of 24.7% to outpace its revenue gains
- Robust free cash flow margin of 15.3% gives it many options for capital deployment, and its growing cash flow gives it even more resources to deploy
Carlisle’s stock price of $326.88 implies a valuation ratio of 16.5x 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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