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.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. Keeping that in mind, here is one cash-producing company that reinvests wisely to drive long-term success and two that may face some trouble.
Two Stocks to Sell:
Acushnet (GOLF)
Trailing 12-Month Free Cash Flow Margin: 4.4%
Producer of the acclaimed Titleist Pro V1 golf ball, Acushnet (NYSE:GOLF) is a design and manufacturing company specializing in performance-driven golf products.
Why Should You Sell GOLF?
- Lackluster 10.1% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 7.2% for the last two years
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Acushnet’s stock price of $81.95 implies a valuation ratio of 21.2x forward P/E. Read our free research report to see why you should think twice about including GOLF in your portfolio.
Old Dominion Freight Line (ODFL)
Trailing 12-Month Free Cash Flow Margin: 16.5%
With its name deriving from the Commonwealth of Virginia’s nickname, Old Dominion (NASDAQ:ODFL) delivers less-than-truckload (LTL) and full-container load freight.
Why Are We Wary of ODFL?
- Declining unit sales over the past two years suggest it might have to lower prices to accelerate growth
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Waning returns on capital imply its previous profit engines are losing steam
At $158.70 per share, Old Dominion Freight Line trades at 31.9x forward P/E. Check out our free in-depth research report to learn more about why ODFL doesn’t pass our bar.
One Stock to Buy:
DexCom (DXCM)
Trailing 12-Month Free Cash Flow Margin: 23.5%
Founded in 1999 and receiving its first FDA approval in 2006, DexCom (NASDAQ:DXCM) develops and sells continuous glucose monitoring systems that allow people with diabetes to track their blood sugar levels without repeated finger pricks.
Why Will DXCM Beat the Market?
- Core business can prosper without any help from acquisitions as its organic revenue growth averaged 16.8% over the past two years
- Earnings per share grew by 17.5% annually over the last five years, massively outpacing its peers
- Free cash flow margin expanded by 17.5 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
DexCom is trading at $65.74 per share, or 27.5x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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