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.
Luckily for you, we built StockStory to help you separate the good from the bad. That said, here are two cash-producing companies that excel at turning cash into shareholder value and one that may struggle to keep up.
One Stock to Sell:
Somnigroup (SGI)
Trailing 12-Month Free Cash Flow Margin: 9.6%
Established through the merger of Tempur-Pedic and Sealy in 2012, Somnigroup (NYSE: SGI) is a bedding manufacturer known for its innovative memory foam mattresses and sleep products
Why Do We Pass on SGI?
- Annual revenue growth of 14.5% over the last five years was below our standards for the consumer discretionary sector
- Free cash flow margin is projected to show no improvement next year
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $60.56 per share, Somnigroup trades at 19.9x forward P/E. To fully understand why you should be careful with SGI, check out our full research report (it’s free).
Two Stocks to Buy:
Zscaler (ZS)
Trailing 12-Month Free Cash Flow Margin: 29.1%
Pioneering the "zero trust" approach that has fundamentally changed enterprise network security, Zscaler (NASDAQ: ZS) provides a cloud-based security platform that connects users, devices, and applications securely without traditional network-based security hardware.
Why Are We Bullish on ZS?
- Winning new contracts that can potentially increase in value as its billings growth has averaged 24.3% over the last year
- Projected revenue growth of 20.9% for the next 12 months suggests its momentum from the last two years will persist
- ZS is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Zscaler is trading at $152.80 per share, or 6.4x forward price-to-sales. Is now a good time to buy? See for yourself in our full research report, it’s free.
Vertiv (VRT)
Trailing 12-Month Free Cash Flow Margin: 21.2%
Formerly part of Emerson Electric, Vertiv (NYSE: VRT) manufactures and services infrastructure technology products for data centers and communication networks.
Why Do We Love VRT?
- Average organic revenue growth of 23.7% over the past two years demonstrates its ability to expand independently without relying on acquisitions
- Free cash flow margin jumped by 22.4 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Returns on capital are growing as management capitalizes on its market opportunities
Vertiv’s stock price of $372.57 implies a valuation ratio of 54x 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
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662%. AppLovin before it ran 753%. Nvidia before it ran 1,178%. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.
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.
