While strong cash flow is a key indicator of stability, it doesn’t always translate to superior returns. Some cash-heavy businesses struggle with inefficient spending, slowing demand, or weak competitive positioning.
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 are two cash-producing companies that leverage their financial strength to beat the competition and one best left off your watchlist.
One Stock to Sell:
Red Rock Resorts (RRR)
Trailing 12-Month Free Cash Flow Margin: 15.6%
Founded in 1976, Red Rock Resorts (NASDAQ: RRR) operates a range of casino resorts and entertainment properties, primarily in the Las Vegas metropolitan area.
Why Is RRR Not Exciting?
- 7.1% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Estimated sales growth of 1.8% for the next 12 months implies demand will slow from its two-year trend
- Diminishing returns on capital suggest its earlier profit pools are drying up
Red Rock Resorts is trading at $58.22 per share, or 31.2x forward P/E. To fully understand why you should be careful with RRR, check out our full research report (it’s free for active Edge members).
Two Stocks to Watch:
Energy Recovery (ERII)
Trailing 12-Month Free Cash Flow Margin: 14.2%
Having saved far more than a trillion gallons of water, Energy Recovery (NASDAQ: ERII) provides energy recovery devices to the water treatment, oil and gas, and chemical processing sectors.
Why Are We Fans of ERII?
- Annual revenue growth of 15.2% over the last two years was superb and indicates its market share increased during this cycle
- Offerings are difficult to replicate at scale and result in a best-in-class gross margin of 68%
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 82% exceeded its revenue gains over the last two years
At $16.77 per share, Energy Recovery trades at 21.8x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
Leonardo DRS (DRS)
Trailing 12-Month Free Cash Flow Margin: 6.9%
Developing submarine detection systems for the U.S. Navy, Leonardo DRS (NASDAQ: DRS) is a provider of defense systems, electronics, and military support services.
Why Should DRS Be on Your Watchlist?
- Market share has increased this cycle as its 13.6% annual revenue growth over the last two years was exceptional
- Demand is greater than supply as the company’s 50.1% average backlog growth over the past two years shows it’s securing new contracts and accumulating more orders than it can fulfill
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 19.2% annually, topping its revenue gains
Leonardo DRS’s stock price of $40 implies a valuation ratio of 35x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.
Don’t let fear keep you from great opportunities and take a look at 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 Kadant (+351% 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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