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. Keeping that in mind, here is one cash-producing company that excels at turning cash into shareholder value and two that may struggle to keep up.
Two Stocks to Sell:
Varonis Systems (VRNS)
Trailing 12-Month Free Cash Flow Margin: 17.2%
Beginning with protecting Windows file shares in 2005 and evolving into a comprehensive security platform, Varonis Systems (NASDAQ: VRNS) provides data security software that helps organizations protect sensitive information, detect threats, and comply with privacy regulations.
Why Are We Bearish on VRNS?
- Products, pricing, or go-to-market strategy may need some adjustments as its 13% average billings growth over the last year was weak
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 1.6 percentage points
Varonis Systems’s stock price of $45.62 implies a valuation ratio of 6x forward price-to-sales. Check out our free in-depth research report to learn more about why VRNS doesn’t pass our bar.
Primoris (PRIM)
Trailing 12-Month Free Cash Flow Margin: 1.2%
Listed on the NASDAQ in 2008, Primoris (NYSE: PRIM) builds, maintains, and upgrades infrastructure in the utility, energy, and civil construction industries.
Why Is PRIM Not Exciting?
- Gross margin of 10.3% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Earnings per share have dipped by 1.5% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Poor free cash flow margin of 2.2% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Primoris is trading at $80.87 per share, or 20.7x forward P/E. Dive into our free research report to see why there are better opportunities than PRIM.
One Stock to Buy:
Seagate (STX)
Trailing 12-Month Free Cash Flow Margin: 25.5%
One of two remaining major hard drive manufacturers after decades of industry consolidation, Seagate (NASDAQ: STX) manufactures hard disk drives and solid state drives that store data in data centers, cloud systems, and consumer devices.
Why Will STX Beat the Market?
- Annual revenue growth of 36.4% over the last two years was superb and indicates its market share increased during this cycle
- Operating margin improvement of 16.8 percentage points over the last five years demonstrates its ability to scale efficiently
- Free cash flow margin jumped by 14.5 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
At $932.50 per share, Seagate trades at 24.4x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+1,154% between June 2020 and June 2025). Find your next big winner with StockStory today.
