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. 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:
Cisco (CSCO)
Trailing 12-Month Free Cash Flow Margin: 19.4%
Founded in 1984 by a husband and wife team who wanted computers at Stanford to talk to computers at UC Berkeley, Cisco (NASDAQ: CSCO) designs and sells networking equipment, security solutions, and collaboration tools that help businesses connect their systems and secure their digital operations.
Why Does CSCO Give Us Pause?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 4.5% for the last five years
- Free cash flow margin shrank by 6.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Eroding returns on capital suggest its historical profit centers are aging
At $113.91 per share, Cisco trades at 24.3x forward P/E. Check out our free in-depth research report to learn more about why CSCO doesn’t pass our bar.
Essent Group (ESNT)
Trailing 12-Month Free Cash Flow Margin: 64.6%
Serving as a crucial bridge between homebuyers and the American dream of homeownership, Essent Group (NYSE: ESNT) provides private mortgage insurance and title services that enable lenders to offer home loans with down payments of less than 20%.
Why Are We Hesitant About ESNT?
- Sluggish 2.4% annualized growth in net premiums earned over the last two years indicates the firm trailed its insurance peers
- Expenses have increased as a percentage of revenue over the last two years as its pre-tax profit margin fell by 8.3 percentage points
- Performance over the past two years shows its incremental sales were less profitable, as its 3.1% annual earnings per share growth trailed its revenue gains
Essent Group is trading at $65.75 per share, or 1x forward P/B. If you’re considering ESNT for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Western Digital (WDC)
Trailing 12-Month Free Cash Flow Margin: 24.7%
Founded in 1970 by a Motorola employee, Western Digital (NASDAQ: WDC) is a leading producer of hard disk drives, SSDs and flash memory.
Why Are We Positive on WDC?
- Estimated revenue growth of 43.7% for the next 12 months implies demand will accelerate from its two-year trend
- Operating margin improved by 17.3 percentage points over the last five years as it eliminated redundant costs
- Free cash flow margin increased by 17.1 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Western Digital’s stock price of $512.76 implies a valuation ratio of 32.1x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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.
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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 Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
