While strong cash flow is a key indicator of stability, it doesn’t always translate to superior returns. Some cash-heavy businesses struggle with inefficient spending, slowing demand, or weak competitive positioning.

Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. That said, here are two cash-producing companies that reinvest wisely to drive long-term success and one that may face some trouble.

One Stock to Sell:

Funko (FNKO)

Trailing 12-Month Free Cash Flow Margin: 5.1%

Boasting partnerships with media franchises like Marvel and One Piece, Funko (NASDAQ:FNKO) is a company specializing in creating and distributing licensed pop culture collectibles.

Why Should You Dump FNKO?

1. Products and services have few die-hard fans as sales have declined by 10% annually over the last two years

2. Earnings per share fell by 15% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable

3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Funko is trading at $4.25 per share, or 20.2x forward P/E. If you’re considering FNKO for your portfolio, see our FREE research report to learn more.

Two Stocks to Watch:

Quanta (PWR)

Trailing 12-Month Free Cash Flow Margin: 6%

A construction engineering services company, Quanta (NYSE:PWR) provides infrastructure solutions to a variety of sectors, including energy and communications.

Why Should You Buy PWR?

1. Backlog has averaged 23.1% growth over the past two years, showing it has a pipeline of unfulfilled orders that will support revenue in the future

2. Forecasted revenue growth of 10.3% for the next 12 months indicates its momentum over the last two years is sustainable

3. Earnings per share grew by 22.4% annually over the last two years and trumped its peers

Quanta’s stock price of $337.67 implies a valuation ratio of 32x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.

Armstrong World (AWI)

Trailing 12-Month Free Cash Flow Margin: 20.2%

Started as a two-man shop dating back to the 1860s, Armstrong (NYSE:AWI) provides ceiling and wall products to commercial and residential spaces.

Why Does AWI Stand Out?

1. Solid 9.2% annual revenue growth over the last two years indicates its offering’s solve complex business issues

2. Highly efficient business model is illustrated by its impressive 24.6% operating margin

3. Strong free cash flow margin of 19.6% enables it to reinvest or return capital consistently