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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. That said, here is one cash-producing company that leverages its financial strength to beat its competitors and two that may face some trouble.
Two Stocks to Sell:
Churchill Downs (CHDN)
Trailing 12-Month Free Cash Flow Margin: 12.9%
Famous for hosting the Kentucky Derby, Churchill Downs (NASDAQ:CHDN) operates a horse racing, online wagering, and gaming entertainment business in the United States.
Why Does CHDN Fall Short?
- Lackluster 13.6% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Estimated sales growth of 5.4% for the next 12 months implies demand will slow from its two-year trend
- ROIC of 8.9% reflects management’s challenges in identifying attractive investment opportunities
At $105.80 per share, Churchill Downs trades at 15.5x forward P/E. Check out our free in-depth research report to learn more about why CHDN doesn’t pass our bar.
Root (ROOT)
Trailing 12-Month Free Cash Flow Margin: 13.5%
Pioneering a data-driven approach that rewards good driving habits, Root (NASDAQ:ROOT) is a technology-driven auto insurance company that uses mobile apps to acquire customers and data science to price policies based on individual driving behavior.
Why Are We Cautious About ROOT?
- Annual book value per share declines of 158% for the past five years show its capital management struggled during this cycle
- Negative return on equity shows that some of its growth strategies have backfired
Root’s stock price of $91.98 implies a valuation ratio of 4.4x forward P/B. To fully understand why you should be careful with ROOT, check out our full research report (it’s free).
One Stock to Buy:
ESCO (ESE)
Trailing 12-Month Free Cash Flow Margin: 15.2%
A developer of the communication systems used in the Batmobile of “The Dark Knight,” ESCO (NYSE:ESE) is a provider of engineered components for the aerospace, defense, and utility sectors.
Why Will ESE Beat the Market?
- Projected revenue growth of 23.1% for the next 12 months is above its two-year trend, pointing to accelerating demand
- Offerings are difficult to replicate at scale and lead to a stellar gross margin of 39.1%
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 22.4% outpaced its revenue gains
ESCO is trading at $200.91 per share, or 30.5x forward P/E. Is now the time to initiate a position? 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 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 Tecnoglass (+1,754% 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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