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.
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 leverages its financial strength to beat its competitors and two that may struggle to keep up.
Two Stocks to Sell:
MasterCraft (MCFT)
Trailing 12-Month Free Cash Flow Margin: 9.9%
Started by a waterskiing instructor, MasterCraft (NASDAQ: MCFT) specializes in designing, manufacturing, and selling sport boats.
Why Is MCFT Not Exciting?
- Number of boats sold has disappointed over the past two years, indicating weak demand for its offerings
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
MasterCraft is trading at $22.19 per share, or 18.7x forward P/E. To fully understand why you should be careful with MCFT, check out our full research report (it’s free).
The Pennant Group (PNTG)
Trailing 12-Month Free Cash Flow Margin: 3.3%
Spun off from The Ensign Group in 2019 to focus on non-skilled nursing healthcare services, Pennant Group (NASDAQ: PNTG) operates home health, hospice, and senior living facilities across 13 western and midwestern states, serving patients of all ages including seniors.
Why Does PNTG Worry Us?
- Modest revenue base of $798.9 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $23.96 per share, The Pennant Group trades at 20.4x forward P/E. Dive into our free research report to see why there are better opportunities than PNTG.
One Stock to Watch:
Toast (TOST)
Trailing 12-Month Free Cash Flow Margin: 9.2%
Born from the frustrations of three friends waiting too long for their restaurant bill, Toast (NYSE: TOST) provides a cloud-based digital technology platform with software, payment processing, and hardware solutions built specifically for restaurants.
Why Do We Like TOST?
- ARR growth averaged 30.8% over the last year, showing customers are willing to take multi-year bets on its software
- Forecasted revenue growth of 21% for the next 12 months indicates its momentum over the last three years is sustainable
- Operating margin expanded by 7.2 percentage points over the last year as it scaled and became more efficient
Toast’s stock price of $44.13 implies a valuation ratio of 4x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 9 Market-Beating Stocks. 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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