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. Keeping that in mind, here is one cash-producing company that leverages its financial strength to beat its competitors and two best left off your watchlist.
Two Stocks to Sell:
Applied Industrial (AIT)
Trailing 12-Month Free Cash Flow Margin: 9.8%
Formerly called The Ohio Ball Bearing Company, Applied Industrial (NYSE:AIT) distributes industrial products–everything from power tools to industrial valves–and services to a wide variety of industries.
Why Are We Wary of AIT?
- 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
- Projected sales growth of 5.2% for the next 12 months suggests sluggish demand
- Earnings per share lagged its peers over the last two years as they only grew by 6% annually
Applied Industrial’s stock price of $257.90 implies a valuation ratio of 23.8x forward P/E. To fully understand why you should be careful with AIT, check out our full research report (it’s free for active Edge members).
Allison Transmission (ALSN)
Trailing 12-Month Free Cash Flow Margin: 20.5%
Helping build race cars at one point, Allison Transmission (NYSE:ALSN) offers transmissions to original equipment manufacturers and fleet operators.
Why Are We Cautious About ALSN?
- Muted 1.5% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Forecasted revenue decline of 2.5% for the upcoming 12 months implies demand will fall off a cliff
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 6.3% annually
At $80.76 per share, Allison Transmission trades at 11.1x forward P/E. If you’re considering ALSN for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Monarch (MCRI)
Trailing 12-Month Free Cash Flow Margin: 26.3%
Established in 1993, Monarch (NASDAQ:MCRI) operates luxury casinos and resorts, offering high-end gaming, dining, and hospitality experiences.
Why Do We Like MCRI?
- Excellent operating margin of 21.1% highlights the efficiency of its business model
- Additional sales over the last five years increased its profitability as the 40% annual growth in its earnings per share outpaced its revenue
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
Monarch is trading at $91.27 per share, or 16x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
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 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
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