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 leverages its financial strength to beat its competitors and two that may struggle to keep up.
Two Stocks to Sell:
MSC Industrial (MSM)
Trailing 12-Month Free Cash Flow Margin: 7%
Founded in NYC’s Little Italy, MSC Industrial Direct (NYSE:MSM) provides industrial supplies and equipment, offering vast and reliable selection for customers such as contractors
Why Are We Out on MSM?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Anticipated sales growth of 3.6% for the next year implies demand will be shaky
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 5.6% annually
MSC Industrial is trading at $92.83 per share, or 24.5x forward P/E. Read our free research report to see why you should think twice about including MSM in your portfolio.
Hexcel (HXL)
Trailing 12-Month Free Cash Flow Margin: 9.1%
Founded shortly after World War II by a group of engineers from UC Berkley, Hexcel (NYSE:HXL) manufactures lightweight composite materials primarily for the aerospace and defense sectors.
Why Do We Steer Clear of HXL?
- Annual sales declines of 1.8% for the past five years show its products and services struggled to connect with the market during this cycle
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
- 8.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
At $62.50 per share, Hexcel trades at 28x forward P/E. Dive into our free research report to see why there are better opportunities than HXL.
One Stock to Watch:
Guidewire Software (GWRE)
Trailing 12-Month Free Cash Flow Margin: 23.3%
With its systems powering the operations of hundreds of insurance brands across 42 countries, Guidewire Software (NYSE:GWRE) provides a technology platform that helps property and casualty insurance companies manage their core operations, digital engagement, and analytics.
Why Are We Positive On GWRE?
- Billings growth has averaged 21.2% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
- Robust free cash flow margin of 23.3% gives it many options for capital deployment
Guidewire Software’s stock price of $245.55 implies a valuation ratio of 15.2x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 5 Growth Stocks for this month. 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-micro-cap company Kadant (+351% 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
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