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. That said, 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:
CarMax (KMX)
Trailing 12-Month Free Cash Flow Margin: 3.8%
Known for its transparent, customer-centric approach and wide selection of vehicles, Carmax (NYSE: KMX) is the largest automotive retailer in the United States.
Why Are We Out on KMX?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Widely-available products (and therefore stiff competition) result in an inferior gross margin of 6.6% that must be offset through higher volumes
CarMax is trading at $58.91 per share, or 23.1x forward P/E. Check out our free in-depth research report to learn more about why KMX doesn’t pass our bar.
The Pennant Group (PNTG)
Trailing 12-Month Free Cash Flow Margin: 5%
Spun off from The Ensign Group in 2019 to focus on non-skilled nursing healthcare services, Pennant Group (NASDAQ: PNTG) operates home health, hospice, and senior living facilities across 13 western and midwestern states, serving patients of all ages including seniors.
Why Is PNTG Not Exciting?
- Smaller revenue base of $1.02 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
The Pennant Group’s stock price of $42 implies a valuation ratio of 29.4x forward P/E. To fully understand why you should be careful with PNTG, check out our full research report (it’s free).
One Stock to Watch:
Granite Construction (GVA)
Trailing 12-Month Free Cash Flow Margin: 6.5%
Having played a role in the construction of the Hoover Dam, Granite Construction (NYSE: GVA) is a provider of infrastructure solutions for roads, bridges, and other projects.
Why Are We Positive on GVA?
- Annual revenue growth of 13.2% over the last two years was superb and indicates its market share increased during this cycle
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Free cash flow margin grew by 11.5 percentage points over the last five years, giving the company more chips to play with
At $124.47 per share, Granite Construction trades at 18.6x forward P/E. Is now a good time to buy? 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 (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
