A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.

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:

ABM (ABM)

Trailing 12-Month Free Cash Flow Margin: 3.7%

With roots dating back to 1909 as a window washing company, ABM Industries (NYSE: ABM) provides integrated facility management, infrastructure, and mobility solutions across various sectors including commercial, manufacturing, education, and aviation.

Why Are We Hesitant About ABM?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

At $38.72 per share, ABM trades at 9.5x forward P/E. Dive into our free research report to see why there are better opportunities than ABM.

ScanSource (SCSC)

Trailing 12-Month Free Cash Flow Margin: 3.9%

Operating as a crucial link in the technology supply chain since 1992, ScanSource (NASDAQ: SCSC) is a hybrid distributor that connects hardware, software, and cloud services from technology suppliers to resellers and business customers.

Why Does SCSC Fall Short?

1. Sales tumbled by 8.6% annually over the last two years, showing market trends are working against its favor during this cycle
2. Anticipated sales growth of 3% for the next year implies demand will be shaky
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 2.6% for the last five years

ScanSource is trading at $36.66 per share, or 8.6x forward P/E. If you’re considering SCSC for your portfolio, see our FREE research report to learn more.

One Stock to Watch:

Xylem (XYL)

Trailing 12-Month Free Cash Flow Margin: 10.1%

Formed through a spinoff, Xylem (NYSE: XYL) manufactures and services engineered products across a wide variety of applications primarily in the water sector.

Why Does XYL Stand Out?

1. Annual revenue growth of 13.1% over the past five years was outstanding, reflecting market share gains this cycle
2. Incremental sales over the last five years have been highly profitable as its earnings per share increased by 19.8% annually, topping its revenue gains
3. Free cash flow margin expanded by 3.7 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends

Xylem’s stock price of $121.80 implies a valuation ratio of 22x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.

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