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.
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 that may struggle to keep up.
Two Stocks to Sell:
ADT (ADT)
Trailing 12-Month Free Cash Flow Margin: 19.2%
Founded in 1874 and headquartered in Boca Raton, Florida, ADT (NYSE: ADT) is a provider of security, automation, and smart home solutions, offering comprehensive services for home and business protection.
Why Do We Steer Clear of ADT?
- Products and services fail to spark excitement with consumers, as seen in its flat sales over the last five years
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 1.4 percentage points
- Underwhelming 7.4% return on capital reflects management’s difficulties in finding profitable growth opportunities
ADT’s stock price of $6.72 implies a valuation ratio of 7.4x forward P/E. Check out our free in-depth research report to learn more about why ADT doesn’t pass our bar.
Meritage Homes (MTH)
Trailing 12-Month Free Cash Flow Margin: 4.2%
Originally founded in 1985 in Arizona as Monterey Homes, Meritage Homes (NYSE: MTH) is a homebuilder specializing in designing and constructing energy-efficient and single-family homes in the US.
Why Is MTH Risky?
- Annual sales declines of 5.8% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings per share have dipped by 2.2% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $68.01 per share, Meritage Homes trades at 12.8x forward P/E. If you’re considering MTH for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Lyft (LYFT)
Trailing 12-Month Free Cash Flow Margin: 17.2%
Founded by Logan Green and John Zimmer as a long-distance intercity carpooling company Zimride, Lyft (NASDAQ: LYFT) operates a ridesharing network in the US and Canada.
Why Will LYFT Beat the Market?
- Active Riders are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features
- Performance over the past three years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 69.1% outpaced its revenue gains
- Free cash flow margin expanded by 24.1 percentage points over the last few years, providing additional flexibility for investments and share buybacks/dividends
Lyft is trading at $14.03 per share, or 6.8x forward EV/EBITDA. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Stocks We Like Even More
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.
Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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.
