A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.

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 that may face some trouble.

Two Stocks to Sell:

GMS (GMS)

Trailing 12-Month Free Cash Flow Margin: 6.1%

Founded in 1971, GMS (NYSE: GMS) distributes specialty building materials including wallboard, ceilings, and insulation products, to the construction industry.

Why Does GMS Worry Us?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend
3. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term

At $109.41 per share, GMS trades at 17.8x forward P/E. If you’re considering GMS for your portfolio, see our FREE research report to learn more.

Cummins (CMI)

Trailing 12-Month Free Cash Flow Margin: 4.9%

With more than half of the heavy-duty truck market using its engines at one point, Cummins (NYSE: CMI) offers engines and power systems.

Why Does CMI Give Us Pause?

1. Annual sales growth of 2.3% over the last two years lagged behind its industrials peers as its large revenue base made it difficult to generate incremental demand
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.9 percentage points
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Cummins’s stock price of $388.49 implies a valuation ratio of 18.8x forward P/E. Check out our free in-depth research report to learn more about why CMI doesn’t pass our bar.

One Stock to Watch:

Cadence (CDNS)

Trailing 12-Month Free Cash Flow Margin: 31.1%

With the name chosen to reflect the idea of a repeating pattern or rhythm in electronic design, Cadence Design Systems (NASDAQ: CDNS) offers a software-as-a-service platform for semiconductor engineering and design.

Why Does CDNS Catch Our Eye?

1. Winning new contracts that can potentially increase in value as its billings growth has averaged 25.5% over the last year
2. User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
3. Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends

Cadence is trading at $352.37 per share, or 17.5x 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

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 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 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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