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:
Q2 Holdings (QTWO)
Trailing 12-Month Free Cash Flow Margin: 19.2%
Founded in 2004 by Hank Seale, Q2 (NYSE: QTWO) offers software-as-a-service that enables small banks to provide online banking and consumer lending services to their clients.
Why Does QTWO Worry Us?
- Sales trends were unexciting over the last three years as its 11.7% annual growth was below the typical software company
- Bad unit economics and steep infrastructure costs are reflected in its gross margin of 51.8%, one of the worst among software companies
- Projected 2.4 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
Q2 Holdings is trading at $90.29 per share, or 7.3x forward price-to-sales. If you’re considering QTWO for your portfolio, see our FREE research report to learn more.
Commvault Systems (CVLT)
Trailing 12-Month Free Cash Flow Margin: 20.5%
Originally formed in 1988 as part of Bell Labs, Commvault (NASDAQ: CVLT) provides enterprise software used for data backup and recovery, cloud and infrastructure management, retention, and compliance.
Why Are We Hesitant About CVLT?
- Muted 9% annual revenue growth over the last three years shows its demand lagged behind its software peers
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 1.6 percentage points
At $182.04 per share, Commvault Systems trades at 7.2x forward price-to-sales. Check out our free in-depth research report to learn more about why CVLT doesn’t pass our bar.
One Stock to Buy:
Sterling (STRL)
Trailing 12-Month Free Cash Flow Margin: 21.6%
Involved in the construction of a major highway, the Grand Parkway in Houston, TX, Sterling Infrastructure (NASDAQ: STRL) provides civil infrastructure construction.
Why Are We Backing STRL?
- Market share has increased this cycle as its 11.9% annual revenue growth over the last five years was exceptional
- Free cash flow margin expanded by 13.9 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Improving returns on capital reflect management’s ability to monetize investments
Sterling’s stock price of $184.79 implies a valuation ratio of 23.2x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
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.
