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.
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 excels at turning cash into shareholder value and two best left off your watchlist.
Two stocks to sell:
Allegro MicroSystems (ALGM)
Trailing 12-Month Free Cash Flow Margin: 9.3%
The result of a spinoff from Sanken in Japan, Allegro MicroSystems (NASDAQ: ALGM) is a designer of power management chips and distance sensors used in electric vehicles and data centers.
Why Are We Bearish on ALGM?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Substandard operating margin profitability and its deterioration over the last five years limit its responsiveness to unforeseen market trends
- Low free cash flow margin of 8.1% declined over the last five years as its investments ramped, giving it little breathing room
At $32.09 per share, Allegro MicroSystems trades at 28.1x forward P/E. Check out our free in-depth research report to learn more about why ALGM doesn’t pass our bar.
Merit Medical Systems (MMSI)
Trailing 12-Month Free Cash Flow Margin: 12.9%
Founded in 1987 and now offering over 1,700 patented products across global markets, Merit Medical Systems (NASDAQ: MMSI) manufactures and markets specialized medical devices used in minimally invasive procedures for cardiology, radiology, oncology, critical care, and endoscopy.
Why Does MMSI Worry Us?
- Modest revenue base of $1.58 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Merit Medical Systems’s stock price of $93.34 implies a valuation ratio of 21.5x forward P/E. To fully understand why you should be careful with MMSI, check out our full research report (it’s free).
One stock to watch:
Toast (TOST)
Trailing 12-Month Free Cash Flow Margin: 8.5%
Born from the frustrations of three friends waiting too long for their restaurant bill, Toast (NYSE: TOST) provides a cloud-based digital technology platform with software, payment processing, and hardware solutions built specifically for restaurants.
Why Are We Positive on TOST?
- ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
- Estimated revenue growth of 19.9% for the next 12 months implies its momentum over the last two years will continue
Toast is trading at $32.58 per share, or 2.4x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks we like even more
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
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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.
