While strong cash flow is a key indicator of stability, it doesn’t always translate to superior returns. Some cash-heavy businesses struggle with inefficient spending, slowing demand, or weak competitive positioning.
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 face some trouble.
Two Stocks to Sell:
Guess (GES)
Trailing 12-Month Free Cash Flow Margin: 1.2%
Flexing the iconic upside-down triangle logo with a question mark, Guess (NYSE: GES) is a global fashion brand known for its trendy clothing, accessories, and denim wear.
Why Do We Pass on GES?
- Muted 2.3% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
- Estimated sales growth of 3.6% for the next 12 months implies demand will slow from its two-year trend
- High net-debt-to-EBITDA ratio of 5× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Guess’s stock price of $11.68 implies a valuation ratio of 5.6x forward P/E. To fully understand why you should be careful with GES, check out our full research report (it’s free).
Johnson Controls (JCI)
Trailing 12-Month Free Cash Flow Margin: 11.5%
Founded after patenting the electric room thermostat, Johnson Controls (NYSE: JCI) specializes in building products and technology solutions, including HVAC systems, fire and security systems, and energy storage.
Why Should You Dump JCI?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.9%
- Underwhelming 6.6% return on capital reflects management’s difficulties in finding profitable growth opportunities
Johnson Controls is trading at $90.64 per share, or 23.8x forward P/E. Check out our free in-depth research report to learn more about why JCI doesn’t pass our bar.
One Stock to Buy:
KLA Corporation (KLAC)
Trailing 12-Month Free Cash Flow Margin: 30.4%
Formed by the 1997 merger of the two leading semiconductor yield management companies, KLA Corporation (NASDAQ: KLAC) is the leading supplier of equipment used to measure and inspect semiconductor chips.
Why Will KLAC Beat the Market?
- Annual revenue growth of 15.6% over the last five years was superb and indicates its market share increased during this cycle
- Excellent operating margin of 35.9% highlights the efficiency of its business model, and its rise over the last five years was fueled by some leverage on its fixed costs
- Strong free cash flow margin of 31.2% enables it to reinvest or return capital consistently
At $700.28 per share, KLA Corporation trades at 22.3x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 6 Stocks for this week. 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 Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.
