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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. That said, here is one cash-producing company that leverages its financial strength to beat its competitors and two that may face some trouble.
Two Stocks to Sell:
Chemed (CHE)
Trailing 12-Month Free Cash Flow Margin: 14.8%
With a unique business model combining end-of-life care and household services, Chemed (NYSE:CHE) operates two distinct businesses: VITAS, which provides hospice care for terminally ill patients, and Roto-Rooter, which offers plumbing and water restoration services.
Why Do We Think Twice About CHE?
- 4.4% annual revenue growth over the last five years was slower than its healthcare peers
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 2.7 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
Chemed is trading at $430 per share, or 18x forward P/E. Read our free research report to see why you should think twice about including CHE in your portfolio.
Quest (DGX)
Trailing 12-Month Free Cash Flow Margin: 11.6%
Processing approximately one-third of the adult U.S. population's lab tests annually, Quest Diagnostics (NYSE:DGX) provides laboratory testing and diagnostic information services to patients, physicians, hospitals, and other healthcare providers across the United States.
Why Does DGX Give Us Pause?
- Sizable revenue base leads to growth challenges as its 5.3% annual revenue increases over the last two years fell short of other healthcare companies
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 11.1 percentage points
- Eroding returns on capital suggest its historical profit centers are aging
At $182.82 per share, Quest trades at 18.3x forward P/E. If you’re considering DGX for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
RBC Bearings (RBC)
Trailing 12-Month Free Cash Flow Margin: 15.6%
With a Guinness World Record for engineering the largest spherical plain bearing, RBC Bearings (NYSE:RBC) is a manufacturer of bearings and related components for the aerospace & defense, industrial, and transportation industries.
Why Does RBC Catch Our Eye?
- Annual revenue growth of 18.9% over the last five years was superb and indicates its market share increased during this cycle
- Market share is on track to rise over the next 12 months as its 14.5% projected revenue growth implies demand will accelerate from its two-year trend
- Disciplined cost controls and effective management resulted in a strong long-term operating margin of 20.2%, and it turbocharged its profits by achieving some fixed cost leverage
RBC Bearings’s stock price of $380.76 implies a valuation ratio of 31.9x forward P/E. Is now the time to initiate a position? 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 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-small-cap company Comfort Systems (+782% 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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