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 reinvests wisely to drive long-term success and two that may struggle to keep up.
Two Stocks to Sell:
Microchip Technology (MCHP)
Trailing 12-Month Free Cash Flow Margin: 17.1%
Spun out from General Instrument in 1987, Microchip Technology (NASDAQ: MCHP) is a leading provider of microcontrollers and integrated circuits used mainly in the automotive world, especially in electric vehicles and their charging devices.
Why Do We Pass on MCHP?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 4.2% annually over the last five years
- Operating profits fell over the last five years as its sales dropped and it struggled to adjust its fixed costs
- 15.8 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
Microchip Technology is trading at $64.45 per share, or 37.2x forward P/E. To fully understand why you should be careful with MCHP, check out our full research report (it’s free).
Envista (NVST)
Trailing 12-Month Free Cash Flow Margin: 10.1%
Uniting more than 30 trusted brands including Nobel Biocare, Ormco, and DEXIS under one corporate umbrella, Envista Holdings (NYSE:NVST) is a global dental products company that provides equipment, consumables, and specialized technologies for dental professionals.
Why Do We Think NVST Will Underperform?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Negative returns on capital show that some of its growth strategies have backfired, and its falling returns suggest its earlier profit pools are drying up
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Envista’s stock price of $20.78 implies a valuation ratio of 18.5x forward P/E. Dive into our free research report to see why there are better opportunities than NVST.
One Stock to Watch:
Euronet Worldwide (EEFT)
Trailing 12-Month Free Cash Flow Margin: 14.2%
Operating a global network of over 47,000 ATMs and 821,000 point-of-sale terminals across more than 60 countries, Euronet Worldwide (NASDAQ:EEFT) provides electronic payment solutions including ATM services, prepaid product processing, and international money transfer services.
Why Could EEFT Be a Winner?
- Decent 9.8% annual revenue growth over the last five years beat most of its peers, showing customers find value in its products and services
- Share repurchases over the last two years enabled its annual earnings per share growth of 11.9% to outpace its revenue gains
- ROE punches in at 18.2%, illustrating management’s expertise in identifying profitable investments
At $92 per share, Euronet Worldwide trades at 8.6x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound 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
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