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 reinvests wisely to drive long-term success and two that may struggle to keep up.
Two stocks to sell:
Home Depot (HD)
Trailing 12-month free cash flow margin: 8.9%
Founded and headquartered in Atlanta, Georgia, Home Depot (NYSE: HD) is a home improvement retailer that sells everything from tools to building materials to appliances.
Why Do We Think Twice About HD?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 3% for the last three years
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Gross margin of 33.1% is below its competitors, leaving less money for marketing and promotions
Home Depot’s stock price of $329.50 implies a valuation ratio of 20.7x forward P/E. Check out our free in-depth research report to learn more about why HD doesn’t pass our bar.
Bausch + Lomb (BLCO)
Trailing 12-month free cash flow margin: 4.7%
With a nearly 170-year history dedicated to vision care and eye health innovation, Bausch + Lomb (NYSE: BLCO) develops and manufactures a comprehensive range of eye health products including contact lenses, pharmaceuticals, surgical devices, and consumer eye care solutions.
Why Is BLCO Not Exciting?
- Falling earnings per share over the last four years has some investors worried as stock prices ultimately follow EPS over the long term
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 0.6% for the last five years
- Underwhelming 1.7% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $20.25 per share, Bausch + Lomb trades at 17.4x forward P/E. Read our free research report to see why you should think twice about including BLCO in your portfolio.
One stock to buy:
Texas Pacific Land (TPL)
Trailing 12-month free cash flow margin: 58.7%
One of America's largest private landowners with roughly 868,000 acres in the Permian Basin, Texas Pacific Land (NYSE: TPL) owns land in West Texas and earns revenue from oil and gas royalties, water services, and land leases.
Why Are We Bullish on TPL?
- Annual revenue growth of 31.1% over the past ten years was outstanding, reflecting market share gains this cycle
- Highly-profitable operating model results in strong unit economics and a best-in-class gross margin of 94.9%
- Strong free cash flow margin of 63% enables it to reinvest or return capital consistently
Texas Pacific Land is trading at $328.33 per share, or 23.6x forward EV-to-EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks we like even more
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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-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
