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 struggle to keep up.
Two Stocks to Sell:
Greenbrier (GBX)
Trailing 12-Month Free Cash Flow Margin: 11.5%
Having designed the industry’s first double-decker railcar in the 1980s, Greenbrier (NYSE: GBX) supplies the freight rail transportation industry with railcars and related services.
Why Does GBX Fall Short?
- Declining unit sales over the past two years suggest it might have to lower prices to accelerate growth
- High input costs result in an inferior gross margin of 14.1% that must be offset through higher volumes
- Cash burn makes us question whether it can achieve sustainable long-term growth
Greenbrier is trading at $48.47 per share, or 0.6x forward price-to-sales. Dive into our free research report to see why there are better opportunities than GBX.
Kodiak Gas Services (KGS)
Trailing 12-Month Free Cash Flow Margin: 15.1%
Dominating the Permian Basin with a fleet focused on large horsepower units exceeding 1,000 horsepower each, Kodiak Gas Services (NYSE: KGS) operates compression equipment that maintains natural gas pressure for production, gathering, and transportation.
Why Do We Think Twice About KGS?
- Revenue base of $1.32 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Costs have risen faster than its revenue over the last five years, causing its EBITDA margin to decline by 3.7 percentage points
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Kodiak Gas Services’s stock price of $74.23 implies a valuation ratio of 4.3x forward price-to-sales. To fully understand why you should be careful with KGS, check out our full research report (it’s free).
One Stock to Buy:
Reddit (RDDT)
Trailing 12-Month Free Cash Flow Margin: 35.1%
Founded in 2005 by two University of Virginia roommates, Reddit (NYSE: RDDT) facilitates user-generated content across niche communities (called subreddits) that discuss anything from stocks to dating and memes.
Why Are We Bullish on RDDT?
- Domestic Daily Active Visitors have increased by an average of 14.4% annually, giving it the potential for margin-accretive growth if it can develop valuable complementary products and features
- Switching costs of its platform were on full display over the last two years as it not only grew engagement but also increased the average revenue per user by 34.8% annually
- Strong free cash flow margin of 30.1% enables it to reinvest or return capital consistently, and its growing cash flow gives it even more resources to deploy
At $156.30 per share, Reddit trades at 18.7x forward EV/EBITDA. Is now the time to initiate a position? Find out in our full 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 Exlservice (+354% five-year return). Find your next big winner with StockStory today.
