Generating cash is essential for any business, but not all cash-rich companies are great investments. Some produce plenty of cash but fail to allocate it effectively, leading to missed opportunities.
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 that may face some trouble.
Two Stocks to Sell:
RTX (RTX)
Trailing 12-Month Free Cash Flow Margin: 9.4%
Originally focused on refrigeration technology, Raytheon (NSYE:RTX) provides a variety of products and services to the aerospace and defense industries.
Why Does RTX Give Us Pause?
- Estimated sales growth of 5.9% for the next 12 months implies demand will slow from its two-year trend
- Underwhelming 4.7% return on capital reflects management’s difficulties in finding profitable growth opportunities
RTX’s stock price of $185.63 implies a valuation ratio of 26.3x forward P/E. Check out our free in-depth research report to learn more about why RTX doesn’t pass our bar.
West Pharmaceutical Services (WST)
Trailing 12-Month Free Cash Flow Margin: 14.2%
Founded in 1923 and serving as a critical link in the pharmaceutical supply chain, West Pharmaceutical Services (NYSE: WST) manufactures specialized packaging, containment systems, and delivery devices for injectable drugs and healthcare products.
Why Are We Hesitant About WST?
- Sales trends were unexciting over the last two years as its 4.9% annual growth was below the typical healthcare company
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 5.8 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
West Pharmaceutical Services is trading at $336.34 per share, or 37.8x forward P/E. If you’re considering WST for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Construction Partners (ROAD)
Trailing 12-Month Free Cash Flow Margin: 6.7%
Founded in 2001, Construction Partners (NASDAQ: ROAD) is a civil infrastructure company that builds and maintains roads, highways, and other infrastructure projects.
Why Are We Backing ROAD?
- Annual revenue growth of 39.9% 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 46.7% over the last two years outstripped its revenue performance
- Free cash flow margin grew by 7.4 percentage points over the last five years, giving the company more chips to play with
At $123.14 per share, Construction Partners trades at 39.8x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
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 Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
