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 are two cash-producing companies that reinvest wisely to drive long-term success and one that may face some trouble.
One Stock to Sell:
Flowserve (FLS)
Trailing 12-Month Free Cash Flow Margin: 9.4%
Manufacturing the largest pump ever built for nuclear power generation, Flowserve (NYSE: FLS) manufactures and sells flow control equipment for various industries.
Why Do We Think Twice About FLS?
- New orders were hard to come by as its average backlog growth of 5.1% over the past two years underwhelmed
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 7.3%
- Low free cash flow margin of 4.9% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Flowserve’s stock price of $73.51 implies a valuation ratio of 18.1x forward P/E. Check out our free in-depth research report to learn more about why FLS doesn’t pass our bar.
Two Stocks to Buy:
Cloudflare (NET)
Trailing 12-Month Free Cash Flow Margin: 12.5%
With a massive network spanning more than 310 cities in over 120 countries, Cloudflare (NYSE: NET) provides a global network that delivers security, performance and reliability services to protect websites, applications, and corporate networks.
Why Should You Buy NET?
- Winning new contracts that can potentially increase in value as its billings growth has averaged 34.2% over the last year
- Expected revenue growth of 28.4% for the next year suggests its market share will rise
- User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
At $233.12 per share, Cloudflare trades at 29.2x forward price-to-sales. Is now the right time to buy? See for yourself in our full research report, it’s free.
Amphenol (APH)
Trailing 12-Month Free Cash Flow Margin: 17.9%
With over 90 years of connecting the world's technologies, Amphenol (NYSE: APH) designs and manufactures connectors, cables, sensors, and interconnect systems that enable electrical and electronic connections across virtually every industry.
Why Is APH a Top Pick?
- Annual revenue growth of 42.1% over the past two years was outstanding, reflecting market share gains this cycle
- Additional sales over the last two years increased its profitability as the 55.5% annual growth in its earnings per share outpaced its revenue
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its rising cash conversion increases its margin of safety
Amphenol is trading at $153.52 per share, or 28.8x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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