A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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 that may struggle to keep up.
Two Stocks to Sell:
Polaris (PII)
Trailing 12-Month Free Cash Flow Margin: 3.3%
Founded in 1954, Polaris (NYSE:PII) designs and manufactures high-performance off-road vehicles, snowmobiles, and motorcycles.
Why Do We Avoid PII?
- Annual sales declines of 11.6% for the past two years show its products and services struggled to connect with the market
- Earnings per share fell by 17.2% annually over the last five years while its revenue was flat, showing each sale was less profitable
- Diminishing returns on capital suggest its earlier profit pools are drying up
Polaris is trading at $40.62 per share, or 27x forward P/E. To fully understand why you should be careful with PII, check out our full research report (it’s free).
Keysight (KEYS)
Trailing 12-Month Free Cash Flow Margin: 26.4%
Spun off from Hewlett-Packard in 2014, Keysight (NYSE:KEYS) offers electronic measurement products for use in various sectors.
Why Do We Think KEYS Will Underperform?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 3.3% decline in its backlog
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $158.19 per share, Keysight trades at 21.7x forward P/E. If you’re considering KEYS for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Federal Signal (FSS)
Trailing 12-Month Free Cash Flow Margin: 10.5%
Developing sirens that warned of air raid attacks or fallout during the Cold War, Federal Signal (NYSE:FSS) provides safety and emergency equipment for government agencies, municipalities, and industrial companies.
Why Are We Backing FSS?
- Sales pipeline is in good shape as its backlog averaged 10.8% growth over the past two years
- Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Earnings growth has trumped its peers over the last two years as its EPS has compounded at 28.7% annually
Federal Signal’s stock price of $99.64 implies a valuation ratio of 26x 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
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today