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 is one cash-producing company that reinvests wisely to drive long-term success and two best left off your watchlist.
Two Stocks to Sell:
Alarm.com (ALRM)
Trailing 12-Month Free Cash Flow Margin: 17.5%
Founded in 2000 as a business unit within MicroStrategy, Alarm.com (NASDAQ: ALRM) is a software-as-a-service platform that enables users to control their security systems and smart home appliances from a single app.
Why Is ALRM Not Exciting?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 6.6% underwhelmed
- Estimated sales growth of 4.2% for the next 12 months implies demand will slow from its three-year trend
- Gross margin of 65.7% reflects its relatively high servicing costs
Alarm.com is trading at $55.88 per share, or 3.4x forward price-to-sales. If you’re considering ALRM for your portfolio, see our FREE research report to learn more.
10x Genomics (TXG)
Trailing 12-Month Free Cash Flow Margin: 7.3%
Founded in 2012 by scientists seeking to overcome limitations in traditional biological research methods, 10x Genomics (NASDAQ: TXG) develops instruments, consumables, and software that enable researchers to analyze biological systems at single-cell resolution and spatial context.
Why Is TXG Risky?
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Negative returns on capital show management lost money while trying to expand the business, and its falling returns suggest its earlier profit pools are drying up
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $10.46 per share, 10x Genomics trades at 2.2x forward price-to-sales. To fully understand why you should be careful with TXG, check out our full research report (it’s free).
One Stock to Buy:
American Superconductor (AMSC)
Trailing 12-Month Free Cash Flow Margin: 11.6%
Founded in 1987, American Superconductor (NASDAQ: AMSC) has shifted from superconductor research to developing power systems, adapting to changing energy grid needs and naval technology requirements.
Why Will AMSC Outperform?
- Annual revenue growth of 45% over the past two years was outstanding, reflecting market share gains this cycle
- Free cash flow margin is now positive, showing the company has crossed a key inflection point
- Historical investments are beginning to pay off as its returns on capital are growing
American Superconductor’s stock price of $29.19 implies a valuation ratio of 55.4x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks We Like Even More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 6 Stocks for this week. 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 Tecnoglass (+1,754% 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
