A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.

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 excel at turning cash into shareholder value and one that may face some trouble.

One Stock to Sell:

Encompass Health (EHC)

Trailing 12-Month Free Cash Flow Margin: 13.8%

With a network of 161 specialized facilities across 37 states and Puerto Rico, Encompass Health (NYSE: EHC) operates inpatient rehabilitation hospitals that help patients recover from strokes, hip fractures, and other debilitating conditions.

Why Are We Wary of EHC?

1. Sales trends were unexciting over the last five years as its 5% annual growth was below the typical healthcare company
2. Disappointing comparable store sales over the past two years show customers aren’t responding well to its offerings and value proposition

Encompass Health is trading at $101.57 per share, or 17.2x forward P/E. If you’re considering EHC for your portfolio, see our FREE research report to learn more.

Two Stocks to Watch:

Western Digital (WDC)

Trailing 12-Month Free Cash Flow Margin: 21.5%

Founded in 1970 by a Motorola employee, Western Digital (NASDAQ: WDC) is a leading producer of hard disk drives, SSDs and flash memory.

Why Are We Fans of WDC?

1. Market share is on track to rise over the next 12 months as its 31.9% projected revenue growth implies demand will accelerate from its two-year trend
2. Operating margin expansion of 16.1 percentage points over the last five years shows the company optimized its expenses
3. Free cash flow margin jumped by 14.7 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends

At $319.43 per share, Western Digital trades at 27.8x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.

Nova (NVMI)

Trailing 12-Month Free Cash Flow Margin: 24.7%

Headquartered in Israel, Nova (NASDAQ: NVMI) is a provider of quality control systems used in semiconductor manufacturing.

Why Should You Buy NVMI?

1. Impressive 30.4% annual revenue growth over the last two years indicates it’s winning market share this cycle
2. Earnings per share grew by 33.2% annually over the last five years and trumped its peers
3. NVMI is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders

Nova’s stock price of $455.41 implies a valuation ratio of 43.1x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.

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