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 face some trouble.
Two Stocks to Sell:
Revolve (RVLV)
Trailing 12-Month Free Cash Flow Margin: 3.9%
Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve (NASDAQ: RVLV) is a fashion retailer leveraging social media and a community of fashion influencers to drive its merchandising strategy.
Why Do We Pass on RVLV?
- Modest 5.4% annual growth in active customers over the last two years indicates potential challenges in customer acquisition and retention
- Expensive marketing campaigns hurt its profitability and make us wonder what would happen if it let up on the gas
- Flat earnings per share over the last three years underperformed the sector average
Revolve’s stock price of $25.20 implies a valuation ratio of 16.2x forward EV/EBITDA. Check out our free in-depth research report to learn more about why RVLV doesn’t pass our bar.
Fastly (FSLY)
Trailing 12-Month Free Cash Flow Margin: 7.3%
Taking its name from the core advantage it delivers to customers, Fastly (NYSE: FSLY) operates an edge cloud platform that processes, secures, and delivers web content as close to end users as possible, enabling faster digital experiences.
Why Are We Out on FSLY?
- Struggled to drive increased usage of its software, demonstrated by its subpar 105% net revenue retention rate
- Gross margin of 57.1% is way below its competitors, leaving less money to invest in areas like marketing and R&D
- Persistent operating margin losses suggest the business manages its expenses poorly
Fastly is trading at $19.97 per share, or 4.3x forward price-to-sales. Read our free research report to see why you should think twice about including FSLY in your portfolio.
One Stock to Buy:
Arlo Technologies (ARLO)
Trailing 12-Month Free Cash Flow Margin: 12.6%
Originally spun off from networking equipment maker Netgear in 2018, Arlo Technologies (NYSE: ARLO) provides cloud-based smart security devices and subscription services that help consumers and businesses monitor and protect their homes, properties, and loved ones.
Why Should You Buy ARLO?
- Solid 8.2% annual revenue growth over the last five years indicates its offering’s solve complex business issues
- Additional sales over the last two years increased its profitability as the 61% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin grew by 18.5 percentage points over the last five years, giving the company more chips to play with
At $13.85 per share, Arlo Technologies trades at 17.7x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don't just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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.
