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.
Luckily for you, we built StockStory to help you separate the good from the bad. That said, here is one cash-producing company that reinvests wisely to drive long-term success and two that may struggle to keep up.
Two Stocks to Sell:
Upstart (UPST)
Trailing 12-Month Free Cash Flow Margin: 6.8%
Founded by the former head of Google's enterprise business, Upstart (NASDAQ: UPST) is an AI-powered lending platform facilitating loans for banks and consumers.
Why Does UPST Give Us Pause?
- Annual sales declines of 11.4% for the past three years show its products and services struggled to connect with the market
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Upstart’s stock price of $83.57 implies a valuation ratio of 7.3x forward price-to-sales. Check out our free in-depth research report to learn more about why UPST doesn’t pass our bar.
Funko (FNKO)
Trailing 12-Month Free Cash Flow Margin: 5.1%
Boasting partnerships with media franchises like Marvel and One Piece, Funko (NASDAQ: FNKO) is a company specializing in creating and distributing licensed pop culture collectibles.
Why Should You Sell FNKO?
- Annual sales declines of 10% for the past two years show its products and services struggled to connect with the market
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 17.2% annually while its revenue grew
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $4.41 per share, Funko trades at 20.8x forward P/E. Dive into our free research report to see why there are better opportunities than FNKO.
One Stock to Watch:
Montrose (MEG)
Trailing 12-Month Free Cash Flow Margin: 4.5%
Founded to protect a tree-lined two-lane road, Montrose (NYSE: MEG) provides air quality monitoring, environmental laboratory testing, compliance, and environmental consulting services.
Why Could MEG Be a Winner?
- Impressive 15.3% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Earnings growth has massively outpaced its peers over the last two years as its EPS has compounded at 146% annually
- Free cash flow margin jumped by 6.9 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Montrose is trading at $23.44 per share, or 9.2x forward EV-to-EBITDA. Is now the time to initiate a position? 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 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 Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.
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