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 excels at turning cash into shareholder value and two that may face some trouble.
Two Stocks to Sell:
Microchip Technology (MCHP)
Trailing 12-Month Free Cash Flow Margin: 21.7%
Spun out from General Instrument in 1987, Microchip Technology (NASDAQ: MCHP) is a leading provider of microcontrollers and integrated circuits used mainly in the automotive world, especially in electric vehicles and their charging devices.
Why Do We Pass on MCHP?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 11.8% annually over the last two years
- Sales were less profitable over the last five years as its earnings per share fell by 9.6% annually, worse than its revenue declines
- Free cash flow margin dropped by 15 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Microchip Technology is trading at $78.87 per share, or 19.7x forward P/E. Read our free research report to see why you should think twice about including MCHP in your portfolio.
Gibraltar (ROCK)
Trailing 12-Month Free Cash Flow Margin: 3%
Gibraltar (NASDAQ: ROCK) makes renewable energy, agriculture technology and infrastructure products. Its mission statement is to make everyday living more sustainable.
Why Does ROCK Give Us Pause?
- Annual revenue growth of 3.8% over the last five years was below our standards for the industrials sector
- Earnings per share have dipped by 9.3% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- High net-debt-to-EBITDA ratio of 6× could force the company to raise capital on unfavorable terms if market conditions deteriorate
Gibraltar’s stock price of $47.89 implies a valuation ratio of 11.2x forward P/E. Check out our free in-depth research report to learn more about why ROCK doesn’t pass our bar.
One Stock to Buy:
Plexus (PLXS)
Trailing 12-Month Free Cash Flow Margin: 1.3%
With over 20,000 team members across 26 global facilities, Plexus (NASDAQ: PLXS) designs, manufactures, and services complex electronic products for companies in aerospace/defense, healthcare, and industrial sectors.
Why Is PLXS a Good Business?
- Solid 8.1% annual revenue growth over the last two years indicates its offerings solve complex business issues
- Exciting sales outlook for the upcoming 12 months calls for 20.6% growth, an acceleration from its two-year trend
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
At $266.25 per share, Plexus trades at 26.4x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.
