A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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 reinvests wisely to drive long-term success and two best left off your watchlist.
Two Stocks to Sell:
Varonis Systems (VRNS)
Trailing 12-Month Free Cash Flow Margin: 21.2%
Beginning with protecting Windows file shares in 2005 and evolving into a comprehensive security platform, Varonis Systems (NASDAQ: VRNS) provides data security software that helps organizations protect sensitive information, detect threats, and comply with privacy regulations.
Why Does VRNS Worry Us?
- 11.8% annual revenue growth over the last two years was slower than its software peers
- Efficiency has decreased over the last year as its operating margin fell by 2.1 percentage points
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 6.5 percentage points
Varonis Systems’s stock price of $23.33 implies a valuation ratio of 3.5x forward price-to-sales. To fully understand why you should be careful with VRNS, check out our full research report (it’s free).
Core Laboratories (CLB)
Trailing 12-Month Free Cash Flow Margin: 4.3%
With roots dating back to the first commercial oil boom, Core Laboratories (NYSE: CLB) analyzes rock and fluid samples from oil and gas reservoirs to help energy companies optimize production and recovery.
Why Do We Avoid CLB?
- 1.6% annual revenue growth over the last five years was slower than its energy upstream and integrated energy peers
- Revenue base of $526.5 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Costly operations and weak unit economics result in an inferior gross margin of 20.7% that must be offset through higher production volumes
Core Laboratories is trading at $16.46 per share, or 23.4x forward P/E. Dive into our free research report to see why there are better opportunities than CLB.
One Stock to Buy:
Fair Isaac Corporation (FICO)
Trailing 12-Month Free Cash Flow Margin: 34.8%
Creator of the three-digit number that can determine whether you get a mortgage or credit card, Fair Isaac Corporation (NYSE: FICO) develops analytics software and the widely used FICO Score, which is the standard measure of consumer credit risk in the United States.
Why Is FICO a Good Business?
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 24.6% exceeded its revenue gains over the last two years
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
- Returns on capital are growing as management capitalizes on its market opportunities
At $1,035 per share, Fair Isaac Corporation trades at 22.5x forward P/E. Is now a good time to buy? See for yourself in our comprehensive 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.
