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.
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 excels at turning cash into shareholder value and two that may face some trouble.
Two Stocks to Sell:
Mercury Systems (MRCY)
Trailing 12-Month Free Cash Flow Margin: 16.5%
Founded in 1981, Mercury Systems (NASDAQ:MRCY) specializes in providing processing subsystems and components for primarily defense applications.
Why Should You Sell MRCY?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Issuance of new shares over the last five years caused its earnings per share to fall by 28% annually while its revenue grew
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Mercury Systems is trading at $56.40 per share, or 75.6x forward P/E. To fully understand why you should be careful with MRCY, check out our full research report (it’s free).
AbbVie (ABBV)
Trailing 12-Month Free Cash Flow Margin: 26.8%
Born from a 2013 spinoff of Abbott Laboratories' pharmaceutical business, AbbVie (NYSE:ABBV) is a biopharmaceutical company that develops and markets medications for autoimmune diseases, cancer, neurological disorders, and other complex health conditions.
Why Are We Cautious About ABBV?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Efficiency has decreased over the last two years as its adjusted operating margin fell by 9.2 percentage points
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.6 percentage points
At $191 per share, AbbVie trades at 15x forward P/E. Read our free research report to see why you should think twice about including ABBV in your portfolio.
One Stock to Watch:
Allison Transmission (ALSN)
Trailing 12-Month Free Cash Flow Margin: 20.3%
Helping build race cars at one point, Allison Transmission (NYSE:ALSN) offers transmissions to original equipment manufacturers and fleet operators.
Why Do We Like ALSN?
- Offerings are difficult to replicate at scale and result in a best-in-class gross margin of 47.7%
- Highly efficient business model is illustrated by its impressive 28.8% operating margin, and its profits increased over the last five years as it scaled
- Strong free cash flow margin of 20.2% enables it to reinvest or return capital consistently
Allison Transmission’s stock price of $98.82 implies a valuation ratio of 9.6x forward EV-to-EBITDA. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
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 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-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