A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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 struggle to keep up.
Two Stocks to Sell:
Donaldson (DCI)
Trailing 12-Month Free Cash Flow Margin: 9.7%
Playing a vital role in the historic Apollo 11 mission, Donaldson (NYSE: DCI) manufacturers and sells filtration equipment for various industries.
Why Are We Hesitant About DCI?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 4.3%
- Eroding returns on capital suggest its historical profit centers are aging
At $84.85 per share, Donaldson trades at 13.8x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why DCI doesn’t pass our bar.
Encompass Health (EHC)
Trailing 12-Month Free Cash Flow Margin: 13%
With a network of 161 specialized facilities across 37 states and Puerto Rico, Encompass Health (NYSE: EHC) operates inpatient rehabilitation hospitals that help patients recover from strokes, hip fractures, and other debilitating conditions.
Why Does EHC Fall Short?
- 6.5% annual revenue growth over the last five years was slower than its healthcare peers
- Weak comparable store sales trends over the past two years suggest there may be few opportunities in its core markets to open new facilities
Encompass Health is trading at $108.11 per share, or 17.2x forward P/E. If you’re considering EHC for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
McDonald's (MCD)
Trailing 12-Month Free Cash Flow Margin: 25.6%
With nicknames spanning Mickey D's in the U.S. to Makku in Japan, McDonald’s (NYSE: MCD) is a fast-food behemoth known for its convenience and broken ice cream machines.
Why Do We Like MCD?
- Rapidly increasing restaurant base reflects a desire to sell in new markets and scale quickly
- Highly-profitable franchise model results in strong unit economics and a best-in-class gross margin of 57.1%
- MCD is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
McDonald’s stock price of $275.28 implies a valuation ratio of 20.8x forward P/E. 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.
Find out which 5 stocks it's flagging for this month - FREE. Get Our Top 5 Growth 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.
