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.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. Keeping that in mind, 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:
onsemi (ON)
Trailing 12-Month Free Cash Flow Margin: 20.1%
Spun out of Motorola in 1999 and built through a series of acquisitions, onsemi (NASDAQ:ON) is a global provider of analog chips specializing in autos, industrial applications, and power management in cloud data centers.
Why Is ON Not Exciting?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 12.5% annually over the last two years
- Forecasted revenue decline of 4.6% for the upcoming 12 months implies demand will fall even further
- High input costs result in an inferior gross margin of 42.5% that must be offset through higher volumes
At $48.36 per share, onsemi trades at 18.6x forward P/E. To fully understand why you should be careful with ON, check out our full research report (it’s free).
ePlus (PLUS)
Trailing 12-Month Free Cash Flow Margin: 4.7%
Starting as a financing company in 1990 before evolving into a full-service technology provider, ePlus (NASDAQ:PLUS) provides comprehensive IT solutions, professional services, and financing options to help organizations optimize their technology infrastructure and supply chain processes.
Why Do We Avoid PLUS?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Forecasted revenue decline of 3% for the upcoming 12 months implies demand will fall off a cliff
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
ePlus’s stock price of $71.85 implies a valuation ratio of 15.8x forward P/E. Check out our free in-depth research report to learn more about why PLUS doesn’t pass our bar.
One Stock to Watch:
Arlo Technologies (ARLO)
Trailing 12-Month Free Cash Flow Margin: 11.2%
Originally spun off from networking equipment maker Netgear in 2018, Arlo Technologies (NYSE:ARLO) provides cloud-based smart security devices and subscription services that help consumers and businesses monitor and protect their homes, properties, and loved ones.
Why Does ARLO Stand Out?
- Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Additional sales over the last two years increased its profitability as the 434% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin expanded by 17.4 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
Arlo Technologies is trading at $16.79 per share, or 25.1x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out our Top 5 Strong Momentum 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
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