A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here is one cash-producing company that reinvests wisely to drive long-term success and two best left off your watchlist.
Two Stocks to Sell:
Pegasystems (PEGA)
Trailing 12-Month Free Cash Flow Margin: 28.4%
With a "Center-out Business Architecture" approach that transcends organizational silos, Pegasystems (NASDAQ: PEGA) develops software that helps organizations automate workflows and use artificial intelligence to improve customer experiences and business processes.
Why Are We Out on PEGA?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 3.6% underwhelmed
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
- Efficiency has decreased over the last year as its operating margin fell by 6.5 percentage points
Pegasystems is trading at $31.85 per share, or 3x forward price-to-sales. Check out our free in-depth research report to learn more about why PEGA doesn’t pass our bar.
Installed Building Products (IBP)
Trailing 12-Month Free Cash Flow Margin: 9.8%
Founded in 1977, Installed Building Products (NYSE: IBP) is a company specializing in the installation of insulation, waterproofing, and other complementary building products for residential and commercial construction.
Why Does IBP Fall Short?
- 1.8% annual revenue growth over the last two years was slower than its industrials peers
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.4%
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 1.4% annually
Installed Building Products’s stock price of $240.25 implies a valuation ratio of 22.6x forward P/E. Read our free research report to see why you should think twice about including IBP in your portfolio.
One Stock to Buy:
Matador Resources (MTDR)
Trailing 12-Month Free Cash Flow Margin: 24.2%
Operating primarily in the Delaware Basin where multiple oil-bearing layers lie stacked thousands of feet deep, Matador Resources (NYSE: MTDR) explores for, drills, and produces oil and natural gas from underground rock formations in New Mexico and Texas.
Why Do We Love MTDR?
- Impressive 29.2% annual revenue growth over the last ten years indicates it’s winning market share this cycle
- Highly-profitable operating model results in strong unit economics and a best-in-class gross margin of 82.3%
- MTDR is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
At $52.93 per share, Matador Resources trades at 6.6x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.
