A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Luckily for you, we built StockStory to help you separate the good from the bad. That said, here are two cash-producing companies that reinvest wisely to drive long-term success and one that may struggle to keep up.
One Stock to Sell:
Snap-on (SNA)
Trailing 12-Month Free Cash Flow Margin: 20.8%
Founded in 1920, Snap-on (NYSE:SNA) is a global provider of tools, equipment, and diagnostics for various industries such as vehicle repair, aerospace, and the military.
Why Are We Hesitant About SNA?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Flat earnings per share over the last two years underperformed the sector average
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Snap-on is trading at $410.41 per share, or 19.8x forward P/E. Read our free research report to see why you should think twice about including SNA in your portfolio.
Two Stocks to Watch:
Electronic Arts (EA)
Trailing 12-Month Free Cash Flow Margin: 34.3%
Best known for its Madden NFL and FIFA sports franchises, Electronic Arts (NASDAQ:EA) is one of the world’s largest video game publishers.
Why Do We Love EA?
- Word-of-mouth marketing drives organic user growth, eliminating the need for costly advertising campaigns
- Excellent EBITDA margin of 43.1% highlights the efficiency of its business model
- Robust free cash flow margin of 33.7% gives it many options for capital deployment, and its rising cash conversion increases its margin of safety
Electronic Arts’s stock price of $209.87 implies a valuation ratio of 18x forward EV/EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.
Costco (COST)
Trailing 12-Month Free Cash Flow Margin: 3%
Designed to be a one-stop shop for the suburban consumer, Costco (NASDAQ:COST) is a membership-only retail chain that sells groceries, apparel, toys, and household items, often in bulk quantities.
Why Is COST on Our Radar?
- Locations open for at least a year are seeing increased demand as same-store sales have averaged 6.6% growth over the past two years
- Enormous revenue base of $293.6 billion compensates for its low gross margin and provides significant leverage in supplier negotiations
- ROIC punches in at 35.1%, illustrating management’s expertise in identifying profitable investments, and its returns are growing as it capitalizes on even better market opportunities
At $951.74 per share, Costco trades at 43.5x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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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 Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.