A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here is one cash-producing company that excels at turning cash into shareholder value and two best left off your watchlist.
Two Stocks to Sell:
Victoria's Secret (VSCO)
Trailing 12-Month Free Cash Flow Margin: 4.8%
Spun off from L Brands in 2020, Victoria’s Secret (NYSE: VSCO) is an intimate clothing and beauty retailer that sells its own brands of lingerie, undergarments, and personal fragrances.
Why Are We Cautious About VSCO?
- Muted 1.1% annual revenue growth over the last three years shows its demand lagged behind its consumer retail peers
- Poor expense management has led to an operating margin of 4.5% that is below the industry average
- Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 16.2% annually
Victoria's Secret’s stock price of $52.14 implies a valuation ratio of 15.2x forward P/E. Read our free research report to see why you should think twice about including VSCO in your portfolio.
Encore Capital Group (ECPG)
Trailing 12-Month Free Cash Flow Margin: 7.2%
Operating in the often misunderstood world of debt collection since 1999, Encore Capital Group (NASDAQ: ECPG) purchases portfolios of defaulted consumer debt at deep discounts and works with individuals to recover these obligations while helping them toward financial recovery.
Why Does ECPG Fall Short?
- Muted 3.3% annual revenue growth over the last five years shows its demand lagged behind its financials peers
- Low return on equity reflects management’s struggle to allocate funds effectively
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Encore Capital Group is trading at $84.22 per share, or 7x forward P/E. Check out our free in-depth research report to learn more about why ECPG doesn’t pass our bar.
One Stock to Watch:
Kinder Morgan (KMI)
Trailing 12-Month Free Cash Flow Margin: 18.6%
Operating what amounts to the toll roads of the energy industry, Kinder Morgan (NYSE: KMI) transports natural gas, refined petroleum products, and crude oil through its pipeline network across North America.
Why Is KMI on Our Radar?
- Dominant market position is represented by its $17.53 billion in revenue and gives it fixed cost leverage when sales grow
- EBITDA profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Robust free cash flow margin of 20.5% gives it many options for capital deployment
At $31.47 per share, Kinder Morgan trades at 23x forward P/E. Is now the time to initiate a position? See for yourself 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-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
