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 excels at turning cash into shareholder value and two that may struggle to keep up.
Two Stocks to Sell:
Dollar General (DG)
Trailing 12-Month Free Cash Flow Margin: 4.4%
Appealing to the budget-conscious consumer, Dollar General (NYSE: DG) is a discount retailer that sells a wide range of household essentials, groceries, apparel/beauty products, and seasonal merchandise.
Why Does DG Fall Short?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Gross margin of 29.9% is below its competitors, leaving less money for marketing and promotions
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $100.27 per share, Dollar General trades at 15.4x forward P/E. To fully understand why you should be careful with DG, check out our full research report (it’s free for active Edge members).
Packaging Corporation of America (PKG)
Trailing 12-Month Free Cash Flow Margin: 7.2%
Founded in 1959, Packaging Corporation of America (NYSE: PKG) produces containerboard and corrugated packaging products as well as displays and package protection.
Why Does PKG Worry Us?
- Sales trends were unexciting over the last two years as its 3.7% annual growth was below the typical industrials company
- High input costs result in an inferior gross margin of 22.7% that must be offset through higher volumes
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 1.1% annually
Packaging Corporation of America is trading at $209.01 per share, or 19.4x forward P/E. Read our free research report to see why you should think twice about including PKG in your portfolio.
One Stock to Watch:
Dynatrace (DT)
Trailing 12-Month Free Cash Flow Margin: 26.2%
With its platform processing over 30 trillion pieces of IT performance data daily, Dynatrace (NYSE: DT) provides an AI-powered platform that helps organizations monitor, secure, and optimize their applications and IT infrastructure across cloud environments.
Why Are We Positive On DT?
- Winning new contracts that can potentially increase in value as its billings growth has averaged 18.9% over the last year
- Software is difficult to replicate at scale and leads to a top-tier gross margin of 81.9%
- Strong free cash flow margin of 26.2% enables it to reinvest or return capital consistently
Dynatrace’s stock price of $47.66 implies a valuation ratio of 7.3x forward price-to-sales. Is now a good time to buy? 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 9 Market-Beating Stocks. 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-micro-cap company Kadant (+351% 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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