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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.

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:

Medifast (MED)

Trailing 12-Month Free Cash Flow Margin: 2.5%

Known for its Optavia program that combines portion-controlled meal replacements with coaching, Medifast (NYSE:MED) has a broad product portfolio of bars, snacks, drinks, and desserts for those looking to lose weight or consume healthier foods.

Why Is MED Risky?

1. Products have few die-hard fans as sales have declined by 30.3% annually over the last three years

2. Overall productivity fell over the last year as its plummeting sales were accompanied by a decline in its operating margin

3. Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term

Medifast is trading at $13.25 per share, or 0.4x forward price-to-sales. To fully understand why you should be careful with MED, check out our full research report (it’s free).

AMN Healthcare Services (AMN)

Trailing 12-Month Free Cash Flow Margin: 8%

With a network of thousands of healthcare professionals ranging from nurses to physicians to executives, AMN Healthcare (NYSE:AMN) provides healthcare workforce solutions including temporary staffing, permanent placement, and technology platforms for hospitals and healthcare facilities across the United States.

Why Do We Steer Clear of AMN?

1. Declining travelers on assignment over the past two years indicate demand is soft and that the company may need to revise its strategy

2. Forecasted revenue decline of 11.7% for the upcoming 12 months implies demand will fall even further

3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $21.49 per share, AMN Healthcare Services trades at 13.9x forward P/E. Check out our free in-depth research report to learn more about why AMN doesn’t pass our bar.

One Stock to Buy:

Doximity (DOCS)

Trailing 12-Month Free Cash Flow Margin: 42.2%

Founded in 2010 and named for a combination of “docs” and “proximity”, Doximity (NYSE: DOCS) is the leading social network for U.S. medical professionals.

Why Do We Love DOCS?

1. Winning new contracts that can potentially increase in value as its billings growth has averaged 20.3% over the last year

2. Software platform has product-market fit given the rapid recovery of its customer acquisition costs

3. DOCS is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders