A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here are two cash-producing companies that reinvest wisely to drive long-term success and one best left off your watchlist.
One Stock to Sell:
PagerDuty (PD)
Trailing 12-Month Free Cash Flow Margin: 20.8%
Born from the frustration of developers being woken up by unprioritized alerts, PagerDuty (NYSE: PD) is a digital operations management platform that helps organizations detect and respond to IT incidents, outages, and other critical issues in real-time.
Why Do We Pass on PD?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 2.5% underwhelmed
- Projected sales are flat for the next 12 months, implying demand will slow from its two-year trend
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 2.3 percentage points
PagerDuty is trading at $6.73 per share, or 1.2x forward price-to-sales. To fully understand why you should be careful with PD, check out our full research report (it’s free).
Two Stocks to Buy:
Federal Signal (FSS)
Trailing 12-Month Free Cash Flow Margin: 12.4%
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 Is FSS a Top Pick?
- Annual revenue growth of 15.3% over the last two years was superb and indicates its market share increased during this cycle
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 29.8% over the last two years outstripped its revenue performance
- Free cash flow margin expanded by 11.1 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
Federal Signal’s stock price of $115.08 implies a valuation ratio of 22.7x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Bel Fuse (BELFA)
Trailing 12-Month Free Cash Flow Margin: 10.6%
Founded by 26-year-old Elliot Bernstein during the electronics boom after WW2, Bel Fuse (NASDAQ: BELF.A) provides electronic systems and devices to the telecommunications, networking, transportation, and industrial sectors.
Why Will BELFA Beat the Market?
- Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Additional sales over the last two years increased its profitability as the 20.5% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin jumped by 13.3 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
At $242.11 per share, Bel Fuse trades at 18.3x forward EV-to-EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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.
